Strengthening the India Australia corridor in select Food and Agribusiness sectors

FINAL REPORT

Submitted to

Submitted by

Rabo India Finance Ltd

June 2007

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Acknowledgement
We express our deep gratitude to the NFIS team including Dr. Susan Nelle, Managing Director as well as Reetica Rekhy, Project Director - Innovation and Theo Simos, Project Director Market Development, for their unstinted support and encouragement in the preparation of this document. Had it not been for their keen enthusiasm, this milestone would have been extremely difficult to reach. We would also like to thank other key members in Austrade for providing us with important insights and sector support, which helped in preparation of this report. We sincerely thank representatives of companies and industry associations who provided their inputs, on the basis of which this document has been prepared.

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Table of Contents

NO.

CHAPTER Executive Summary ........

PAGE 4 8 9 13 25 28 56 81

1. 2. 3. 4. 5. 6. 7.

Background ......... Project Methodology ....... Food Retail and Food Service trends ......... The Cold Chain Opportunity .. Fruit and Vegetables ... Dairy.... Grain based foods..

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Executive Summary
India is the largest democracy in the world with a stable political system. India is the third fastest growing economy in the world with the GDP growth rate peaking to 9.2% in the year 2006-07. This USD 1 trillion economy with a wealthy middle class population of 300 million is an attractive destination for foreign investors due to its established and fair judicial system, the widespread use of English in business and commerce and highly skilled and relatively low cost work force. Also, India has probably the most open and liberal investment regimes among the emerging economies, with a conducive environment for Foreign Direct Investment (FDI). Though India is widely acknowledged as an Information Technology (IT) and Information Technology Enabled Services (ITES) superpower, the most recent development in the Indian economic landscape is the emergence of organised retail. Retail business in India is estimated to be at USD 321 Billion of which organised retail is only USD 12 Billion. Organised food retail market is estimated to be USD 1.5 to 2 billion. With the involvement of large Indian business houses and arrival of world's leading retail chains, the organised retail is growing at 44% per annum and the organised food retail is growing at 25% per annum. The growth of organised food retail has let to opportunities for both domestic and international players in food processing to enter the Indian market with their high quality and niche products. With this background in mind, National Food Industry Strategy (NFIS) has mandated Rabo India Finance (RIF) to undertake a study on three agribusiness sectors of significance to both Australia and India viz. fruits and vegetables, dairy and grains. Fruit and Vegetables In case of Apple and stone fruits there exists opportunities in varietal development and enhancement of productivity from the current production scenario. Large area suitable for apple growing in India makes it an ideal location for setting up production base for high quality apples. There exists large potential for import of apples, especially in the off season. However, Australias shrinking production base, with little export surplus could be a concern area. Exports of stonefruits from Australia could be routed through the apple trade channels to ensure synergy.

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-----------------------------------------------------------------------------------------------------------Dependence on old cultivars and unscientific post harvest practices weakens the domestic production of the studied fruits and vegetables. Stone fruit production is commercially unviable currently due to lack of varieties with high keeping quality thereby hindering the marketability. The current stone fruit production is mostly traditional and rainfed. Opportunity exists for providing know-how for better agronomic practices such as high density planting and micro irrigation techniques. Production partnerships for relatively new fruits such as raspberries and blueberries is viewed as another attractive opportunity especially in areas with highly suitable chilling conditions required for his produce. Varietal development and productivity improvements are desired in the case of strawberry. Partnering in setting up of cost efficient cold chain logistics and cold storage infrastructure is clear opportunity in the fresh produce sector. Absence of cost effective Controlled Atmosphere (CA) storage which can store apples for long duration such as six months and targeting the lean season of domestic apples offers a potential opportunity. Cost effective refrigerated transport systems would enhance the commercial viability and marketability of these products. Frozen vegetables, such as peas offer opportunities for technology transfer in the areas of advanced freezing process and equipments. Sweeter varieties of peas and green peas based snacks could be launched to target niche urban consumer markets. Opportunities also exist for new processed products and processing technologies for berries and stone fruits - to be used in fruit fillings, ice creams etc. Given the positive demographic trends such as rising income levels, growth in organised retail and increasing health consciousness, the concept of juice bar chains leveraging on Australias strong expertise could be a winning opportunity. Dairy India is the largest milk producer in the world with production expected to touch 100 million tonnes by 2007. India produces around 15% of the total milk produced in the world. India contributes 4 million tonnes to the worlds incremental production of 7.5 million tonnes. The per capita availability of milk is 241 gm/day which is lower than the global average of 285 gm/day. The average productivity of milch animals is among the lowest in India (the average is less than one fifth of Australia). Dairying in India is mainly done by farmers, who on an average hold two to three milch animals. Improper cattle rearing methods, lack of feed

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-----------------------------------------------------------------------------------------------------------input to the milch animals, tropical climate and low yielding indigenous breed are some of the major deterrents for increased productivity of milch animals. India has a unique pattern of production and milk collection. It follows a three tier system with farmers producing milk as the first tier, dairy cooperative societies and the district milk union forming the second and the third tier. These cooperatives form part of a national milk grid that links milk producers throughout India with consumers in more than 700 towns and cities and bridges seasonal and regional variations in the availability of milk. However, quality of milk at the back end is the major issue of concern in India. Most of the dairy plants in India (organized) have ISO HACCP certification. The organized sector handles around 17-18% of the total milk production in India; the rest is handled by unorganized ones and used for personal consumption. The problems in processing include supply imbalances during the lean(summer) and flush(winter) season, regional demand supply imbalances, lack of large scale processing, limited commercialization of Indian dairy, lack of packing technology and inefficient distribution infrastructure network. The farm gate prices of milk produced in India is among the lowest in the world and with many milk deficient countries surrounding India, thereby offering export opportunities. The market for milk based products viz. cheese, ice cream, dahi, paneer, khoa, butter, etc. is increasing at double digit rates in India. There is ample scope for setting up large scale dairy farms in India to produce cheap milk and cater to the demand of Indian population also the set up can be used as a sourcing base for exports of milk and milk based products to neighbouring countries.

Grain based foods Indias wheat production would be stagnated between 72 to 73 million tonnes in the years to come as the area under cultivation and productivity has stabilised at 26 million hectares and 2.7 tonnes per hectare. The inability of the public procurement system to procure enough wheat for food security purpose and the increasing demand for wheat has forced India to import wheat from the international market and this trend might continue on and off in the years to come depending on the monsoon. At present only 10% of the total wheat is processed into value added items like branded atta, biscuits, breads and namkeen. The processed wheat based products market is growing at an average of 6% while the wheat production is stagnating.

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-----------------------------------------------------------------------------------------------------------Australian businesses have good opportunities for partnering with Indian business in developing the wheat based products market. Indian bread market is about INR 38 billion (USD 0.90 billion) growing at about 6%. Australian companies can join hands with SMEs for new product development and technologies for instant mixes. Indian biscuit market is INR 69 billion (USD 1.7 billion) growing at about 7.5% per annum. Opportunities for Australian companies lie in joining hands with SME players to make different varieties of cookies and biscuits with limited transfatty acids. Bakery franchising is another area of interest for the Indian investors wherein Australia has good expertise. The pasta market in India is currently small but is growing at a rate of about 7-9%. Australian firms could explore direct exports of its pasta into India and develop the market further. Growth of organized retailing also provides enough opportunities for pasta exports into India.

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Chapter 1 Background
The food and agribusiness sector in Australia enjoys a reputation for producing highquality, environmentally-friendly agribusiness products, technologies and services. This has been achieved through innovation, the persistent application of sustainable agricultural and resource management practices, ongoing successful government and industry partnerships. On the 28th of February 2007, the Australian Minister for Trade announced in a Joint Ministerial Council meeting with the Indian Commerce and Industry Minister, a joint study of the opportunities for participation of the Australian agri-food industry in the innovative development of the Indian food supply chain. The aim of the joint study was to assess the issues and opportunities in the Indian food processing industry and to examine specific agri-food supply chains where Australian expertise and participation could benefit the development of the food industries in both countries. National Food Industry Strategy (NFIS) Ltd (an industry-led company, funded by the Australian Government to support Australia's food industry towards a sustainable and profitable role in the global food industry) has provided the project management and direction to the study in both India and Australia with support from Austrade and the Commonwealth Department of Agriculture, Fisheries and Forestry. The research in India was conducted by the Strategic Advisory & Research (Food & Agribusiness) division of Rabo India Finance Ltd (100% subsidiary of Rabobank International, headquartered in the Netherlands).

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Chapter 2 Project Methodology

The study has sought to undertake a general assessment of the issues and opportunities in the innovative development of the Indian food processing industry through supply chain analysis and opportunity identification in select food and agribusiness sectors.

2.1 Project Methodology

The summary of the components highlighted below was undertaken by Rabo India,

A
Shortlist sectors of interest for further study

B
Detailed supply-chain analysis (including constraints and gaps) for selected sectors.

C
Assess opportunities for leveraging on the expertise of Australia in the select sectors.

A) Shortlisting of sectors The sectors of interest, shortlisted in consultation with NFIS, based on relative strengths of Australia were Fruit and Vegetables, Grain based foods and Dairy. Specific sub sectors within the above 3 sectors to be studied by Rabo: 1) Fruits & Vegetables Fruits: Berries (raspberry, blueberries, strawberry), Apples, Stone fruits/summer fruits (cherries, peaches, apricots, nectarines, plums) Vegetables: Broccoli, Broccolini, Potato, Peas (frozen), Mixed vegetables (frozen), stir fry vegetable mixes (frozen), Frozen French fries, Soups (instant mixes) Note - Grading, sorting, packaging, labelling, presentation, storage, transport and logistics of fresh produce on farm or off farm (ie at grower and/or packer levels) for sale to retail / foodservice channels would be considered as part of value addition.

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-----------------------------------------------------------------------------------------------------------2) Grains Wheat Durham wheat (variety) processed into Pasta, Noodles etc Other functional foods Biscuits, Breads such as wholemeal, wholegrain, multigrain etc, gluten free products/gluten substitutes etc. Indigenous varieties of wheat varieties having more nutritional value (link to work done by M S Swaminathan Foundation). Grain based specialty Ingredients- that go into products like Cake Mixes, Gluten etc. Barley (processed) 3) Dairy Major dairy food ingredients Greater focus on value added products such as Frozen & Flavored yogurts, Sorbets etc. Other High end / value added products 4) Food Retail Synopsis of players in Food Retail and their plan of expansion to give an idea as to how fast retail is expanding and its potential impact on the agri-food industry. B) Detailed Supply Chain analysis The scope of the field research was focused yet extensive and covered the following issues Assessment of the rapidly developing food retailing sector Detailed supply chain analysis with a view to evaluating constraints in the Indian industry o o o o o o o o Field level issues Production level issues Post harvest practices processing Marketing Cold storage related issues Legal & taxation issues Quality & hygiene standards Research, training & development
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-----------------------------------------------------------------------------------------------------------The study was conducted through secondary data research, meetings and discussions with stakeholders, some of whom included: Food processor companies Cold chain suppliers / technology providers Industry associations Importers /exporters National institutions / universities concerned with research in food processing Government departments

Based on the supply chain analysis Rabo India also highlighted opportunities that exist in each of the sectors studied across the supply chain, which would specifically leverage on the expertise of Australian companies. At the end of the supply chain analysis, an interim presentation was made to the NFIS team via video-conference. C) Identification of potential opportunities based on Australian agri-food expertise NFIS Ltd. and Rabo India organised focused workshops in three major cities in India (28 May 2 June 2007) to engage leaders in the Indian agri-food industry by presenting the interim findings of the study to test and validate the opportunities identified in the sectors studied. Leading Indian companies (such as Reliance Retail Ltd) active in dairy, horticulture and grains, participated in these forums. Key personnel from CII, Austrade and DAFF staff in India also attended the workshops. The workshops were followed by one-on-one meetings between NFIS Ltd and senior management (CEOs/MDs) of Indian organisations who had expressed keen interest in exploring potential commercial opportunities. Specific collaboration opportunities were explored in these meetings, which NFIS Ltd. promised to take back and present to a select group of leaders in the Australian agri-food industry. The high level of enthusiasm and response of the various stakeholders confirms the value of these initiatives in focusing attention on the contribution that Australia can make to the Indian food industry while also providing impetus for growth, development and innovation within the Australian agri-food sector. Further to the India testing, Mr Rajesh Srivastava (Managing Director, Rabo India Finance), visited Australia in the week of 25 June 2007 to provide private briefings to select Australian companies with an interest to seriously explore the possibility of

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-----------------------------------------------------------------------------------------------------------engaging in the Indian food processing market. The companies were invited based on their potential fit with identified opportunities (and in some cases, with Indian companies that have expressed a genuine interest in exploring a potential commercial opportunity with an innovative Australian food company).

2.2 Timeframe
Milestone Identification of sectors for study Completion of general assessment of issues, supply chain mapping and identification of related Australian expertise Draft interim presentation (submission by email) Interim Presentation (By Video conference) Assessment of potential investment/development opportunities for mutual benefit India testing (Chennai, Mumbai, Delhi) Final report (by email) Assessment of potential investment/development opportunities for mutual benefit Australia testing with selected companies 23 June, 2007 25-28 June, 2007 7 May, 2007 14 May, 2007 29 May 2 June, 2007 Timeline March 14, 2007 April 30, 2007

2.3 Project Team

The Engagement was handled by a responsive, effective and flexible team whose members between themselves have the relevant business experience and capabilities to provide value added solutions on this assignment. The team was led by Rajesh Srivastava, Managing Director and Head, Corporate and Commercial Banking, Rabo India Finance. The other team members comprised: S. Venkatraman, Director, Strategic Advisory, Food and Agribusiness Dr. C Prabhu, Associate Director, Strategic Advisory, Food and Agribusiness Manoj Nair, Manager, Strategic Advisory, Food and Agribusiness Vaishali Chopra, Manager, Strategic Advisory, Food and Agribusiness Cherry Jacob, Manager, Strategic Advisory, Food and Agribusiness Pawan Kumar, Manager Strategic Advisory, Food and Agribusiness Abhinesh Gopal, Associate, Strategic Advisory, Food and Agribusiness

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Chapter 3 Food Retail and Food Service trends

3.1. Food retail in India
Indian retail is gradually inching its way toward becoming the next boom industry. Over time it has emerged as one of the most dynamic and fast paced industries. Retail industry is growing at a rate of 5% with total revenues of USD 321 billion and is expected to be worth USD 637 billion by 2015 with a growth rate of 7-8%.
Exhibit 3.1 Growth of Indian Retail (USD billion)
450 400 350 300 250 200 150 100 50 0 1998 2000 2002 2004 2006 2008 2010

Estimated Retail growth in USD billion

Source: AT Kearney- CII

The organized retail industry is estimated at USD 12 billion in size in 2006. It is projected to grow at a CAGR of 44% to USD 75 billion in 2011.
Exhibit 3.2 Share of organized retail across sectors
80 70 60 50 40 30 20 10 0 0 10 5 20 15 25

Food and Grocery

Clothing and Textile

Consumer Jewellery and Durables Watches

Home and Dcor Furnishing

Beauty Care

Market Share (Total Retail) Market Penetration of Organised Retail

Market Share (Organised Retail)

Source: CII-AT Kearney

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-----------------------------------------------------------------------------------------------------------Retailing in India accounts for 10% of its GDP and around 8% of the employment. Food retail in India accounts for around 65% of the total retail and is characterised by the sheer dominance of a large number of small unorganized retailers. Organised food retailing is still at its infancy stage, having a share of less than 1% of total food retail market in India. Indian food retail market is estimated to be worth USD 210 billion with organised food retailing being USD 1.5-2 billion. Despite the fact that food is the largest category in the consumers spending basket, with a share of around 50%, organized food retailing is faced with certain limiting factors like lack of industry status, capital constraints, high tax rates, highly fragmented supply chain, restrictive land laws and lack of infrastructure. For long, Indian consumers have been deprived of quality food products, wide variety and value added service at the retail front because of the highly fragmented nature of food retailing. Organised food retailing has the potential to bridge this gap. This represents a great opportunity for the growth of organised food retail in India. Organised food retail in India, which has been growing at a rate of 25%, is expected to witness a growth rate of 30-35% in the coming 5 years. Indian food retail is witnessing a swing from being unorganised to organised due to factors like increased disposable incomes, increase in double income nuclear families, burgeoning middle class, increased urbanization, increased quality consciousness, availability of quality retail space and greater need for convenience among consumers. Food and grocery retail in India is highly unorganized with around 6.5 million mom & pop stores and the presence of only a few national food retail chains. Most of the current leading retail chains are present predominantly in particular regions, like Subhiksha, Food World, Nilgiris and Margin Free which are concentrated in South India. Indian organized food retail has been characterised by the presence of regional players. Organized food retailing is a sunrise industry with a bright future, as is evident from the fact that a large number of big corporates are making their entry into the sector with huge investments. Large international retailers like Wal-Mart, Carrefour and Tesco are vying for a share of the large Indian retail sector pie.

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-----------------------------------------------------------------------------------------------------------Exhibit 3.3 Major retailers in India

Retailer Name Outlet type Ownership No. of Expansion plans outlets Annual sales (2005-06) USD Reliance retail Plans for Local (Reliance 180 Plans for 3000 stores, 2500 over 2009 Local franchisee of the U.S StarIndia bazaar Hypermarkets Local (operated by Trent, of group) Spinach Supermarkets Local (a 24 neighbourhood Store operation established 2006 Wadhwan Family) Radhakrishna Foodland Supermarkets Local the from (holds license Spar 4 Plans new outlets in Mumbai by mid 2007 40 Aim stores to is in some Delhi 100 and N/A Delhi to open 8-10 N/A Mumbai in by the Tata retail division 1 In Ahmedabad stores Plans are to 7 MN Delhi Northern India and further of My Dollar store 42 400 stores by 2010 10 MN 28 cities all over country the supermarkets, 100 cities by 1000 hypermarkets in N/A Andhra Pradesh, Rajasthan, Tamil Nadu Locations

hypermarkets, Industries) supermarkets & convenience stores

My store

dollar

Convenience stores

planned for Mumbai & Bangalore. open 8 -10 SIB across India By 2008 Aim to have 1500 N/A

Mumbai

stores by 2010-12 of which 300-500, should be by acquisitions

international) Sabka Bazaar Supermarket Local (parent companyHome Stores belongs Shahid group) Shoprite hypermarket Local (franchised from African retailer Shoprite Indian company Megasave) by South 1

northern India

Plans to add 2-3 new outlets by 2007

12.5 MN

Mumbai

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-----------------------------------------------------------------------------------------------------------Retailer Name Outlet type Ownership No. of Expansion plans outlets Annual sales (2005-06) USD Metro Cash & Carry * Cash & carry Foreign (Metro Germany) AG, 3 Plans to open 18 outlets by 2010 in Kolkata, Hyderabad, Delhi, Mumbai, Chennai, Pune, Ludhiana & Chandigarh Trumart Supermarkets & Conveniance stores Food Bazaar Hypermarkets & Supermarkets Spencers ** Local (Pantaloon group) (RPG 125 15 new stores in 10 cities by December 2007 & more to open in west and north by 2008 Food world Supermarkets Local subsidiary of Dairy (Jardine Matheson Group) Nilgiris Supermarkets & Conveniance stores Local (Private owned Franchisee private equity fund Actis holds a 51% share Trinethra *** Supermarkets stores Local group) acquired the AV Birla by local 170 Aggressive launch plans to in 67.4 MN Major in cities Andhra & convenience (Trinethra 25stores 51 Plans rapid expansion by franchising 66.6 MN Major of India cities South Farm International 46 Plans years aggressive N/A Mumbai, Hyderabad & Vizag expansion within 2-3 76.2 MN 72 Plans for 250 stores by 2010 76.2 MN National (major metros cities) Hypermarkets, Local supermarkets & convenience stores group) Major cities in South India and Local (Pyramid retail) 8 Plans for 69 Trumarts by 2007 & 128 by 2010 22 MN Maharashtra and Gujarat 80 MN Bangalore and Hyderabad Locations

Kerala over the next six months

Pradesh, Tamil Nadu, Karnataka Kerala &

conglomerate

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-----------------------------------------------------------------------------------------------------------Retailer Name Outlet type Ownership No. of Expansion plans outlets Annual sales (2005-06) USD Margin free Discount stores & Local Cooperative protection & Subhiksha Discount stores Guidance 650 Plans for 1000 store all over the country, mainly in Maharashtra by 2007 74 MN society) Local (Subhiksha Trading Services Private ltd.) Major Tamil Andhra Pradesh, Pondicherry and Delhi Adani Stores Supermarkets & Convenience stores Source: KSA Technopak Local (acquired Reliance) by 47 Expansion expected announced to plans be 24.7 MN Gujarat NCR cities Nadu, 300 Rapid expansion plans In south india 135 MN Major Tamil and Karnataka cities Nadu Locations

of Kerala

supermarkets (Consumer

3.2 Changing Consumer trends

Consumerism is on the rise Increase in disposable income levels, a burgeoning middle class, young population, changing lifestyle, increasing double income nuclear families are some of the drivers that are paving the way for organised food retailings growth in India. From save to spend Due to changes in lifestyle, increasing disposable incomes and easy availability of credit, Indian food retail is witnessing a paradigm shift in consumer behaviour: it has transformed from save to spend. Today, many consumers are giving greater importance to quality and convenience than price. Young population backed by ability and willingness to spend India has the youngest population in the world with more than 53% below the age of 25 years. Nearly 26-27% of the population is in the age group of 20-34, which is the age group of new age consumers, who have the ability as well as the willingness to spend on quality products. This is in contrast to the situation in many other countries, where the larger share of

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-----------------------------------------------------------------------------------------------------------the population is above the age of 60. The median age of Indias population is lowest among countries like China, USA, Russia and UK.
Exhibit 3.4 Comparison of Median Age across countries
40 35 30 25 20 15 10 5 0 India USA China Russia UK

Median Age of Population (Years) in the Year 2000.

Source: Population Division, DESA, United Nations.

Increased disposable incomes The economic boom in India has manifested itself in increased disposable incomes, which in turn has increased the standards of living. This has caused a shift in the consumption pattern: from low value cereal-based products to high value processed products and fresh fruits and vegetables. Most of these upwardly-mobile consumers have little personal time and seek greater variety and availability of items under a single roof. They are give greater priority to convenience, which is the basic proposition of modern retailing formats. Disposable incomes are further expected to grow at an average rate of 8.5% till 2015.
Exhibit 3.5 Projected growth in income classes in India (Figures in million households)
Income group <INR 16000 INR 16000-22000 INR 22000-45000 INR 45000-215000 >INR 215000 Source: Rabobank estimates 2001-02 24 88 74 46 2006-07 17 20 82 76 2009-10 12 14 81 95 2014-15 7 7 78 120

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Urbanisation Urbanisation is on a rise in India. Urban consumers gravitate towards an enhanced shopping experience today, both consciously and sub-consciously, and are willing to pay the extra price for it. Increased exposure to international trends through a large number of students going abroad, media, multinationals setting up in India has further led to the growth of organized
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-----------------------------------------------------------------------------------------------------------retailing. With an increasing number of population migrating to cities, urbanization is on a rise in India favouring the growth of organized food retail.
Exhibit 3.6 Growing urbanization in India
% of total population Urban Rural Source: EIU, July 2006 1999 27.4 72.6 2004 28.5 71.5 2009 30 70

Growing middle class At present, Indias middle class stands at more then 350 million out of the total population of 1.1 billion. Largely, middle and high class customers are the ones who shop at modern retail outlets. Increasing population of working women The population of working women in India has increased from 22% in 1991 to 26% in 2001. An increase in number of working women has increased both consumption as well as the purchasing power. Due to scarcity of time, working women are shifting to ready to eat, ready to cook and processed food. Further with domestic help becoming more expensive, women are left with no other option but to go for time saving and processed and semi-processed food, fuelling the growth of organised food retail.

3.3 Key market drivers

Organised food retail is showing an upward growth trend backed by a number of key market drivers, like availability of quality retail space, easy availability of finance, increasing health consciousness, increasing quality consciousness and need for convenience. Availability of quality retail space Until the late 1990s, the high cost of real estate meant that organized food retail business models were not financially viable in metropolitan areas. In the last few years, by contrast, a lot of mall space has been created. About 300 malls are at various stages of construction in different parts of India including metro and mini-metro towns giving a boost to the modern food retail. A further rise in the number of malls is expected in the coming years giving a boost to the organized food retailing.

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-----------------------------------------------------------------------------------------------------------Exhibit 3.7 Increase in number of shopping malls in India

600 500 N : f m lls oo a 400 300 200 100 0
2000 2005 2008 2010

Source: India Retail Report 2006 KSA Technopak

Easy availability of finance Nowadays with aggressive lending by banks and finance companies at fairly low rates of interest, availability of finance has eased up. Owing to this fact, the tendency to save money is also getting dissolved. Cash is giving way to credit cards. Consumer credit, especially through credit cards, has been growing year-on-year. This ease of credit availability has not only increased the buying capacity of the consumers but is also acting as a catalyst in increasing the propensity to spend. Branded foods leading ways to modern retail outlets With changing consumer life styles and rising disposable incomes, branded and convenient foods are gaining vast popularity. The market for branded foods is growing at a healthy rate of 10% -15%, representing a growing opportunity for the organised food retailers. Increasing health consciousness An improvement in the standard of living has caused people to become more health and environment conscious. This is driving the growth for hygienic and healthy food products. A large number of players dealing in fruit juices, edible oils and dairy are adopting the health planks for positioning their products, realising the importance of health to the consumers. Need for convenience The modern day consumer is looking for convenience, not just in purchasing but also in carrying, cooking and eating. Portability and single serve packaging are on the rise to meet the need to "eat where you are". Convenience, together with health consciousness, has played an important role in growth of categories like mineral water and packed fruit juices contributing to the growth of organised food retail.

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-----------------------------------------------------------------------------------------------------------Exhibit 3.8 Evolving food demand in India

Diet / functional / organic foods Convenience foods Snacks / prepared meals Dairy, meat, fresh fruits fruit juices, beverages Carbohydrate staples Afric (Sub - Saharan) Eastern Europe

North America, Japan, Western Europe, Australia

India

China, Latin America

Surviving Source: Rabobank International

Mass Marke

Convenience Food Service Snacking

Quality y Hygiene

High Technology

One stop shopping With increasing number of working couples, rise in number of nuclear families and long working hours, the time left for food and food related shopping is decreasing. Modern food retail outlets are offering one stop solutions to consumers. Consumers can find everything from fresh fruits and vegetables, staples, and processed foods to grocery items under one roof at modern retail outlets. Moreover, these outlets offer a wide variety of products at reasonable prices besides self service facilities and attractive ambience.

3.3 Fresh produce retailing

The Indian retail market for fresh foods, until recently a fragmented and unstructured one, is undergoing a rapid transformation as more and more large-scale retail operators (Indian and international) are entering this sector. India is the second largest producer of fruits and vegetables in the world. At present, the organised retailing part of the total USD 35 billion (INR 1.45 trillion) fruits and vegetables business in India is estimated at about USD 73 million (INR 3 billion). Indian fresh produce market has been dominated by street-side vendors and open marketplaces where vendors bring in fresh produce from the wholesale market on a daily basis using the existing available mode of public transport and dispose off the leftover produce at throwaway prices at the end of each day. India has a very inefficient supply chain and very poor logistics that is evident from the fact that 30 - 40% of the fresh produce rots before it can be sold. In the supply chain as many as 8 middlemen are involved who eat away the margins of the farmers, reducing farmers share in consumers price to only 30 - 40 %.

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-----------------------------------------------------------------------------------------------------------In spite of all these limitations, organised fresh produce retail has a tremendous potential to grow as fresh food accounts for 50% of the food and grocery bill of consumers in India. Already around 400,000 sq.ft. of retail space is dedicated to fresh produce retailing. This segment today attracts as much as 70% of total investment in retailing. With consumers becoming more quality and health conscious, footfalls have risen by nearly 25 % to a fresh produce store.
Exhibit 3.9 Major players operating in fresh produce retailing
Retailer Parent Offering No. of stores Reliance Fresh Reliance Retail F&V, foods, Subhiksha Subhiksha Trading Spencers RPG Group F&V, bakery products, chilled & frozen foods, meat, fish, poultry Food Bazaar Natures Basket Godrej Agrovet Future Group Staples, cut fruits and vegetables, dairy and bakery products, tea F&V, juice meats, mixes Spinach Wadhawan Food Retail Snacks, bakery, dairy products, F&V, groceries, foods, frozen 24 800 12 - 15 Personalized service Indian caf, Thai sweets, frozen food 7 dairy products, fresh 20-23 0.15 72 350 (farm fresh) 8 (farm fresh) 125 2,000 10 dairy, bakery 180 No. of stores by 2009 1,500 Investment Planned 09 (INR Bn) 250 (total for retail operations) 3 price ranges for common vegetables 650 2,000 6 Prices cheaper by 10% from others Live kitchen during weekends Touch, feel, taste & smell products Targets the upper class, stores in up market areas products, processed beverages, USP

snacks, staples Fruits and vegetables

meat, fish, poultry

Many other big players, besides the above, are also investing heavily to enter the segment, e.g. Aditya Birla Retail, Bharti-Wal-Mart. In the current scenario, retailers have adopted different means of sourcing fruits and vegetables. Most of them source a part of their requirement from the traditional wholesale markets, e.g. Food Bazaar, Reliance Retail. Many retailers are procuring through contract farming which is helping in meeting their quality requirements, in addition to quantity requirements. Subhiksha is procuring 20% of its requirement from Nasik farmers through contract farming. Reliance is also procuring a part of its total requirement through contract farming in Punjab and Haryana. Some professional players have come up in the market to serve the back end needs of retailers. These companies
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-----------------------------------------------------------------------------------------------------------source fresh produce from farmers and supply it to the retailers at fair prices. DSCL is one such player, currently supplying to Food Bazaar, Subhiksha and Spencers. FieldFresh, a joint venture between Bharti Group and NM Rothschild, is supplying premium quality fresh produce to markets worldwide. FieldFresh is also planning future investments to the tune of USD 220 million in the backend, including investments in cold chains and warehouses. Reliance Retail has established relationship with a large number of farms in Maharashtra and Karnataka and has its own cargo carriers for moving produce from the farms to the food processing plants or retail outlets; Reliance Retails has also invested heavily in tracking systems to monitor the movement of goods and plan inventories and has entered into tie-ups with food processing plants to ensure quantity and quality of output. Total back-end creation investment by all retailers is estimated at USD 500 million.

3.4 Food service in India

Currently in India, close to 28% of the population live in urban areas and this share is expected to grow to 40% by 2025. Currently, Indias food service sector sales are estimated at USD 10 billion (INR 434 billion). About 4.5% of urban consumers eat outside of their home at least once a week, and about 12% eat out once a month. Further, about 15% of food expenditure of the Indian middle class is out of home. However, the share of organised players in food service sector is less than 5%.
Exhibit 3.10 Major food chains in India
Name of Chain McDonalds Pizza Hut Pizza Corner Dominos Pizza Subway KFC TGI Fridays Baskin Robbins Cookie Man Barista Coffee Caf Coffee Day Nirulas Moti Mahal Source Rabobank research No. of Outlets 108 126 47 105 65 15 5 200 25 176 400 63 30 Format Quick Service Pizza Pizza Pizza Burgers Quick Service/ Chicken Casual dining Ice cream Cookies Coffee bar Coffee bar Indian Quick Service Mughlai

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-----------------------------------------------------------------------------------------------------------Exhibit 3.11 Segment-wise market share of different food service formats

Ho tels & Lo dgings 9%

Takeaways 3%

P ubs, Clubs & Nightclubs 1 5%

Restaurants 39.4%

Others 1 6% Cafs 1 7%

Source Data Monitor, 2005

Increasing out-of-home food consumption represents a significant opportunity for foodservice companies. The organized fast food business in India is estimated at over INR 20 Bn (USD 445 mn), and growing at high double-digit rates. The changing consumer orientation towards branding, food safety and hygiene (in both kitchen and dining areas) and increasing propensity for out-of-home food consumption is spurring the development of organized foodservices. Several multinational foodservice majors have forayed into India over the last few years including McDonalds, Pizza Hut, KFC, Dominos, Subway etc. On the back of these developments, several home-grown players have also emerged such as Caf Coffee Day, Pizza Corner, Mars Group of restaurants etc., each of which has distinct positioning planks such as value-for-money, fine dining etc. Some of the specific opportunities include associating with Indian Companies for setting up bakery and bread cafes as well as juice bars.

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Chapter 4 The Cold Chain opportunity

It is estimated that there are 3500 cold storage units in India, with a storage capacity of more than 10 million tons. In value terms, the market size of cold storage in India in 2003-04 stood at INR 1,250 million. Average growth rate of commercial and industrial refrigeration is estimated at 10% p.a. Most cold stores do not offer multiple product capabilities, multi-temperature facilities or controlled atmosphere provisions Out of the total cold storage capacity in the country, nearly 48% (4.83 million tons) of the share is with a single state i.e. Uttar Pradesh where the cold storages are mostly used for potato and potato seed. It is followed by West Bengal with a cold storage capacity of 2.24 million tons (Share 26%). The Western part of India has a cold storage capacity of 0.5 million tons, out of which the State of Maharashtra has a capacity to store 0.35 million tons. The cold chain infrastructure sector is largely fragmented and characterized by very few integrated logistics management players. Most of the players are independent cold storage houses. The few integrated players like Snowman, Frick India, Chaitanya Cold Storage, Fresh Express and Kausar have been successful because they offer complete logistics management services, secondary distribution services and have infrastructure to handle large customers, with operations across the country. Going forward, competition in this segment in expected to increase. The rank wise commodities stored in the cold storage are potatoes, apples, spices, dairy products, marine products, other fruits and vegetables. Nearly 80% of the capacity gets utilized in the storage of potatoes and potato seed. Other aspects of Cold Chain storage: Potato constitutes over 90% of the tonnage currently handled, indicating low level of cold storage usage in fresh produce sector (only 0.11 million tons - less than 0.1% of annual production) About 15,000 more cold storage units required at an investment of USD 6 billion in the coming 10 years Over 3,000 reefer trucks required at an investment of USD 130 million for domestic transportation of fresh produce over the same period Operating costs for Indian cold storage units are over USD 60 per cubic metre per year compared to less than USD 30 in the West.

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-----------------------------------------------------------------------------------------------------------Energy expenses make up about 28% of the total expenses for Indian cold storages compared to 10% in the West. These factors make setting up of cold storages difficult, unviable and uneconomical. About 30-35% of the losses can be reduced by transporting the freshly harvested fruits and vegetables in refrigerated containers thus closing this gap in the cold chain. There exists a need for about 20,000 refrigerated containers of standard TEU size (with about 0.24 million sq. meters using solar PV panels fixed on their rooftops to be totally independent of the power grid or DG sets using fossil fuels, valued at USD 0.53 billion), to transport the freshly harvested produce, placed strategically at various locations in the farms all across the country. Commercially, the payback period for this mammoth project is quite attractive. Refrigerated containers score substantially over conventional refrigerated trucks in terms of suitability for this application in Indian terrain.

Exhibit 4.1 Organised Players in Indian Cold Chain Industry

Player Snowman (Gateway Distriparks) Frick India HLL, Key customers Amalgam, Dairy, GCMMF, Baskin Service Integrated Logistics Refrigeration Equipment and Storage Services Chaitanya Cold Storage Joy ice creams, Farm Suzanne, McCain Foods, Dominoes, Pizza Hut, Vadilal Ice Cream Fresh Express Kausar Cadbury's, Dominos, Nestle, Dabur Nestle, Cadburys Storage and Storage and 1 cold store in Bangalore and 1015 reefer trucks around Bangalore; reports suggest that the transportation business has been sold/hived off 2 cold stores in Western India, and 10-15 reefer trucks Delhi based, specialises in refrigerated transport solutions to its customers Nationally and integrated service Transportation Transportation (full truck load basis) Radhakrishna Foodland Western McDonalds, hotels & restaurants F&V business Integrated Logistics Storage Equipment Refrigeration provider in times to come 1 cold store in Mumbai, 1 in Chennai Transportation National Operations player, 16 cold stores

Mother

across India, 90 reefer trucks, runs specified reefer truck routes 2-3 cold stores, centred around Delhi

Robins, Mars, etc HLL, Allana, Al Kabeer

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-----------------------------------------------------------------------------------------------------------Exhibit 4.2 Typical margins in cold chain

Manufacturing

Warehousing

Transportation

Distribution

Retailing

% of MRP

62-71%

1-2%

3-4%

10-12%

15-20%

Logistics takes 14 -18% of MRP

Distribution offers the largest margins in cold chain logistics. Currently, there are some fragmented regional players in secondary distribution but none at the national level, besides Snowman. A player in cold chain logistics in India would be able to perform best by offering integrated logistics management services, secondary distribution and national coverage. There are very few players currently who have the capacity and reach to cater to the burgeoning demand for cold storage, in terms for pan-India connectivity and specific cooling requirements.

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Chapter 5 Fruit and Vegetables

India is the worlds second largest fruit and vegetable (F&V) producer, accounting for 9.2% of total global production. India produced 80.3 million tonnes of vegetables in 2005 (10.2% of global production) and 47.3 million tonnes of fruit in 2005 (7.8%, of global production) 1 . Horticulture crops cover 13.6 million hectares, which is approximately 7% of the total grossed cropped area of the country and contributes 18%-20% of the gross value of Indias agricultural output. The export of fresh fruit and vegetables from India in 2005-06 is estimated at 1.45 million tonnes valued at INR 16.6 billion. The main export produce are onions, mangoes and grapes. It is estimated that less than 2% of the total fruit and vegetables produced in India is processed into categories like jam, pickles, ketchup, sauce, juices, pulp, cooked and fresh cut and packed products. The bulk of fruit and vegetable produce is traded in domestic markets for daily consumption. Data released by National Sample Survey Organization (NSSO) in 2004 estimates that consumer demand for fresh fruits and vegetables is growing at a CAGR of 11%. Though about 2% of this growth rate is attributable to population growth, about 9% is due to changing diet thus increasing consumption of fruit and vegetables.

5.1 F&V supply chain

The fruit and vegetable supply chain differs according to the type of the crop, nature of market which is being serviced and the proximity of production to the market.
Exhibit 5.1: Fruit and Vegetable Supply Chain
Hand Cart Vendor Village Commission Agent Market Commission Agent Wholesaler SubWholesaler Roadside Vendor Retailer Supermkt

Farmer

Consumer

Trader / Transporter

Contract Cultivation F&V Marketing Company

Intermediate Processor

Final Processor

Source: Rabobank Analysis

Source: FAO Database 2005

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-----------------------------------------------------------------------------------------------------------Exhibit 5.1 illustrates a typical fruit and vegetable supply chain in India consisting of four to ten participants, depending on the market conditions. Due to the lack of a cold chain, highly perishable crops like green leafy vegetables have a shorter chain where the farmer sometimes sells the produce directly at the market. Contract production in case of fruit and vegetables amounts to less than 2% of total production in India; the bulk of the production is direct cultivation by farmers who are fully exposed to the market risk. Due to the long and inefficient supply chain, consumer prices keep fluctuating with a small share of the consumer rupee reaching the farmers. The mark-ups by each participant in the chain cause the farmer to receive as little as 35% of the price paid by the consumer (see Exhibit 5.2).
Exhibit 5.2 : Price build-up along the Apple supply chain (percentage)
120% 10.0% 100% 7.2% 80% 60% 40% 20% 0% Commission agent - Mumbai Retailer Margin Farmer Selling price Packaging Commission agent - Delhi Wholesaler commission Transportation to Delhi Orchard Owner Margin Local Transportation Final price to customer Transport to Mumbai Wastage Wastage 36.30% 5.6% 5.6% 4.1% 2.9% 11.6% 5.0% 8.9% 1.8% 1.0% 100.0%

Source: Market Sources

Contract cultivation is in a nascent stage in the Indian market. There is no provision for legal contracts which bind the farmers and the procurer; hence there is a high chance of default at either end. Contract cultivation in India occurs mostly on a relationship basis with the farmers with companies trying to assist farmers in different areas with the ultimate goal of higher stable returns for the farmers.

5.2 Consumer behaviour in F&V purchase

Consumers in India typically purchase vegetables once every two to three days, although in some regions (East and South India) this is done on a daily basis. Procurement of fruit is generally less frequent, usually once in a week. Retail sales

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-----------------------------------------------------------------------------------------------------------occur primarily at fruit/vegetable markets, followed by roadside vendors, door-to-door vendors and wholesalers. Shopping for fresh produce is usually undertaken by the lead male or female member of the family. Consumers prefer to have a look and feel of the product before buying and thus most of the purchasing is done at wet markets. The key parameters that influence where consumers purchase are the quality of the produce, price, variety of produce, proximity, cleanliness, ambience, habit, relationship with retailers and bargaining capacity. Retail markets rate highly in terms of quality, price, and variety while doorstep vendors rate well in terms of convenience, quality and cleanliness. Overall, most consumers consider retail markets the preferred location for the purchase of F&V produce, followed by doorstep vendors and roadside vendors. Consumers prefer to buy the quantity based on need. While pre-packed formats for F&V are not yet popular in India, changing lifestyle patterns, an increase in nuclear families and more working couples have generated a shift among some consumers to a preference for cut and packed fresh vegetables. The demand for imported fresh fruit and vegetables is growing rapidly amongst urban consumers, despite the products being three to four times more expensive than their domestic counterparts. There is now a high degree of health consciousness among the urban consumers and they are willing to pay a higher price for the quality of the produce delivered.

5.3. Marketing and Market intelligence

5.3.1 Domestic marketing

All sales of F&V in the domestic market are controlled by agricultural markets, established and regulated under the respective State APMC Acts. The geographical area in a State is divided and declared as a market area wherein the markets (mandis) are managed by the Market Committees constituted by the State Governments. Once a
particular area is declared a market area and falls under the jurisdiction of a Market Committee, no other person or agency is allowed to carry on wholesale marketing activities.

The current system of agricultural markets is associated with several problems: It discourages direct farming arrangements between farmers and processors / corporates who are keen to source appropriate quality raw material for their requirements. The APMC acts require such corporates to pay the mandi cess even if they are not utilizing the mandi infrastructure.

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----------------------------------------------------------------------------------------------------------- The commission agents in the existing mandis have become extremely powerful in the fresh produce channel; often the farmer (who does not actually visit the mandi) is not paid the fair price fetched by his produce. The amount of power wielded by commission agents is evident in the price quoted in the grey markets for a license to become a mandi commission agent.

5.4 Issues in F&V supply chain

Some of the key issues which affect the trade of F&V products in the Indian market are identified below. 1. Low Yields The average Indian yields are low in comparison with the worlds best. Indian yields are among the best in banana and grapes. However they are extremely low in most other F&V produce. One of the important reasons is the inappropriate varieties being propagated in India. In the case of bananas and grapes, new varieties have been introduced and adopted rapidly and successfully. The key factor contributing to success in these two cases has been the low gestation period for changing the varieties. 2. Inappropriate varieties Apart from leading to low yields, Indian varieties in several F&V are associated with other issues: Lack of amenability to processing such as for oranges, potatoes and tomatoes. Low shelf lives and therefore high cost of transport for domestic as well as export markets Initiatives based on varietal change can have a long gestation period, thus deterring entry of corporates into the sector. Initiative - Pepsi and Government of Punjab Pepsi and Government of Punjab have partnered to propagate new varieties of citrus fruits in the state. At present, Pepsi is importing FCOJ (Frozen Concentrate of Orange Juice) which is a raw material for Tropicana juice, marketed in India. The citrus fruit which will be cultivated in Punjab, will replace imported FCOJ. The Punjab Government has been actively engaged in providing requisite facilitatory support to Pepsi through purchase of germplasm, providing land for demonstration plots and engaging in demonstrations via Punjab Agriculture University (PAU) and the State Horticulture Department (See Exhibit 5.3)
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-----------------------------------------------------------------------------------------------------------Exhibit 5.3 : Pepsi-Punjab Government project on Oranges

Quarantine and selection

Germplasm

Demonstration

Propagation

Growing

Pepsi

Identified classical varieties in Florida

Done at greenhouse run by Pepsi (technical expertise)

Numerous demonstration plots; the first one run by Pepsi on land leased by Government

Initial propagation at Pepsi greenhouse; saplings sold at price decided jointly with Govt

Punjab Govt

Paid for the germplasm

Invested in the greenhouse

Other plots run by PAU / Horti dept with cost footed by Govt Private nurseries to grow based on training given by PAU; nurseries enthusiasm based on farmer demand; success of crop in demonstration plots Group of farmers sent to Florida for training (at own cost of farmer) Saplings bought by farmer to be planted in fresh orchards / to replace old orchards

Pvt Nurseries

Farmer

3. Financing of farmers The gestation period for cultivation of any fruit is typically at least 3-4 years. Producers are unable to obtain financing for such a time period from banks/financiers at affordable rates. Without adequate financing which addresses the need for a moratorium period, it is difficult to encourage farmers to experiment with new varieties, which may be more remunerative. Lack of financing from banks / financial institutions leads the farmers to middlemen, who advance money to the grower or take the farm on lease. 4. Supply chain constraints The supply chain is characterised by the presence of large number of intermediaries which leads to additional mark-ups on the final selling price. This leads to high prices for the consumer, most of which are absorbed by chain constituents resulting in low returns for the farmer. 5. Post-harvest facilities Insufficient knowledge of post-harvest operation and lack of facilities for pre-cooling, grading and packing compound the post-harvest losses and wastage in fruit and vegetables.

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-----------------------------------------------------------------------------------------------------------6. Lack of cold chain and proper transportation In India, fresh F&V is usually transported in trucks at ambient temperature. The produce is stacked in piles in the vehicle and no scientific storage mechanism is followed, resulting in damage and wastage in F&V. The labour used for handling F&V is not trained in handling further leading to loss in value. It is estimated that the wastage in the Indian market is about 35% of the total F&V produced. 7. Insufficient market links Production and demand are not coordinated due to the lack of market information at the farm end. The farmer is not oriented towards commercial demand-driven production, which results in frequent surplus. The production and high demand areas are also not linked for efficient marketing of perishable products. Indian products (both processed and fresh) need to be de-commoditised through effective marketing highlighting differentiating attributes, supported by tactical initiatives such as sales promotions and participation in marketing fairs/trade exhibitions etc. Further, there is a need to develop processed F&V based products which are tailored for the palate of the importing market. 8. Space constraints at market yards Demand and arrivals at the markets have been growing steadily over the years but the size of the premises has remained constant, leading to capacity constraints. In addition, they are located in areas of high pedestrian and road traffic which, combined with the narrow roads in the area, result in congestion and traffic jams that hinder transport of the produce both in and out of the markets. 9. Lack of infrastructure facilities Most of the markets do not have proper loading bays for the produce and arriving goods have to be carried from the roadside (where the vehicles are usually parked) through a stream of vehicular and pedestrian traffic into the main market. The movement of goods is undertaken by porters who carry weights ranging from 50 to 120 kg per head at a time. Storage facilities are minimal due to the space constraint, which leads to a high level of wastage. Grading, sorting and packing facilities are rudimentary (either manual or non-existent). Waste disposal facilities are also rudimentary, leading to low hygiene levels. 10. Weak credit support Lack of organised credit facilities in the chain affects production and market participants. Commission agents pay sellers in cash but provide a credit period to a

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-----------------------------------------------------------------------------------------------------------buyer, which leads to resource crunch. They are also unable to obtain credit from banks as the title to goods is transferred directly from the seller to the buyer. In addition, the commission agents also suffer losses of 15% to 30% annually due to nonpayment of dues by buyers. The credit rates available in the market are exorbitant, usually from unorganised sources. 11. Unscientific pricing There is a wide fluctuation in F&V prices in the Indian market, and this is attributable to lack of transparent trading systems and cartelisation at the marketplace among large traders. Given the agro-climatic diversity and suitability for producing a wide range of F&V crops throughout the year, India has the potential to become a production hub for fruits and vegetables for the world market. To realise the benefits of the export opportunities in the future and also to successfully meet the domestic demand, it is essential to develop the marketing chain in F&V.

5.4 F&V Based Processed Foods

Less than 2% of the total F&V produced in India is processed either into the categories listed in Exhibit 5.4 below or into fresh packed F&V. There are no official statistics available on the size of these processed F&V categories.
Exhibit 5.4 : Processed F&V (Estimated Industry Size)
Category Organized Jam Pickles Sauce / Ketchup Pulp / concentrate Juices / Fruit based drinks Squashes Ready to Eat Vegetables Potato chips Cooking pastes Total Source: Rabobank Analysis 1000 (23) 1700 (40) 1200 (28) 4800 (112) 6500 (151) 1400 (33) 1300 (30) 3200 (74) 400 (9) 43750 (1017) Industry size INR mn (USD mn) Unorganized 550 (13) 11000 (256) 4500 (105) 2700 (63) 3500 (81) Unilever, Mapro, Marico, Malas Priya foods, Praveen, Desai Brothers, Cavin Kare, GD Foods HLL, Nestle, GD Foods, Heinz Foods and Inns, Jain Irrigation Pepsi, Dabur, Parle, Godrej, Mother Dairy HLL, Haldiram, Mapro Tasty Bite, ITC, MTR Pepsi Dabur, Unilever Key players in organized segment (branded and packed products)

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-----------------------------------------------------------------------------------------------------------Fresh packed F&V, primarily an export led business, is a large industry in India, and is growing rapidly. India exported about 1.45 million tonnes (INR 16.6 bn) of fresh F&V in 2005-06 2 . Export of these products has been growing at a CAGR of over 13% during the last 5 years. However, these volumes are insignificant, at less than 1% of total production. There has been an increase in proportion of graded, packed F&V. The focus on specific varieties for different markets has increased in the past, exports were primarily targeted at the Indian ethnic population while now, Indian exports compete with other global suppliers across markets to cater to a broader spectrum of world demand. The Indian consumers preference for preparation of F&V based foods at home continues, although there is gradual acceptance of processed foods. A continuation of this trend is expected in the next ten years, which implies significantly higher growth potential for fresh packed F&V as opposed to processed F&V. The F&V based processed food sector is not a very large industry. Historically many F&V based products were reserved for the small scale Industry by Government Legislation. The restrictions have now been lifted for most products. However, due to the past restriction, a significant proportion of F&V units are still housed in the small scale sector. Therefore processing is characterized by a high degree of fragmentation and low capacity utilization. The single largest issue with the processing sector is the lack of scale in most units, which in turn is linked to absence of backward and forward linkages, low adherence to quality standards and inability to invest in market development. The various schemes of the Government have hindered scale through: low ceilings on subsidies available for promoting investments (promoters prefer to set up two small plants rather than one large plant) Agriculture Produce Marketing Committee (APMC) Act which hinders backward linkages While there are no Central taxes on locally manufactured, F&V based processed foods, there are several state levies such as sales tax, octroi etc. which effectively translate into higher consumer prices which in turn impacts consumption.

Source: APEDA

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-----------------------------------------------------------------------------------------------------------5.4.1 Prevention of Food Adulteration (PFA) Several studies and analyses have been conducted on the problems faced by the fruit processing industry due to the multiplicity of ministries and laws that control the food industry. Some of the overlaps between 2 such laws (FPO 3 and PFA) are given below as examples of the operational problems for the industry. FPO allows use of artificial sweeteners in Fruit products. PFA does not [Rule 47] The emulsifiers and stabilisers permitted for use [eg. in Jams, Marmalade & Fruit Chutney] under PFA and FPO differ. As per FPO, jam should have a minimum % of soluble solids (sugar content). This implies that an All-fruit No sugar jam cannot be marketed. The proposed Integrated Food Law would be able to address the above issues effectively.

5.5 Apple
5.5.1 Production Indian apple production is about 1.7 million tonnes and India is the tenth largest producer of apples in the world.
Exhibit 5.5 : Area and Production of Apple

300

2000

1500 Production 200 Area

1000 100 500

0 87-88 92-93 94-95 96-97 98-99 00-01 02-03 04-05

Area (In ' 000 HA)

Production (in ' 000 MT)

Fruit product order

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-----------------------------------------------------------------------------------------------------------Exhibit 5.6 : Apple productivity and percentage of total fruit area, & production

87-88

92-93

94-95

96-97

98-99

00-01

02-03

% of Total Fruit Area % of Total Fruit Production Productivity (In MT/HA)

The low levels of productivity, about 7.5 tonnes/ ha against a world average of 13 tonnes/ha, is one of the major challenges. The current production area of 0.2 mn ha area has grown by 15% from the previous year. Though the production is characterized by slow growth and low yields, there has been an upward trend since the last three years. Indian apple-producing regions are exposed to the variable precipitation associated with the sub-continents monsoon climate.
Exhibit 5.7 Apple production regions

04-05

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-----------------------------------------------------------------------------------------------------------Exhibit 5.8 : State-wise Area, Production & Productivity of Apple (2004-05)

States Area (in ' 000 Ha) 108 Production (in ' 000 MT) 1093 Productivity (MT/Hectare) 10 Growing areas Srinagar, Budgam, Jammu & Kashmir Pulwama, Anatnag, Baramullah, Kupwara Himachal Pradesh 86 528 6 Shimla, Kullu, Sirmour, Mandi, Chamba, Kinnaur Almora, Pithoragarh, Uttarakhand 28 109 4 Tehri Garhwal, Uttarkashi, Chamoli, Dehradun, Nainital Arunachal Pradesh Others India 8 0.3 231 10 0.1 1739 1 0.4 8 Tawang, West Kanneng, Lower Subansiri Nagaland, Sikkim

About 99 percent of Indias apple area falls under the North Western Hills region, covering 6 districts of Jammu & Kashmir, 6 districts of Himachal Pradesh and 8 districts of Uttarakhand. In the north-eastern hills region, good quality apple is grown in a small area in Arunachal Pradesh. Apple is also grown in Sikkim and Nagaland but with limited success. 5.5.2 Seasons and Varieties Most of the apples grown in India are variants of the Red Delicious or Royal Delicious varieties and the harvest period in India is from June to November. Although some harvest activity begins as early as June, the bulk of the harvest occurs during September and October. The post harvest loss at 20 % is mostly due to poorly coordinated collecting and storing systems. The collection, grading and storing is not carried out in a scientific manner. Grading standards are only partly fixed. Based on the current storage situation, apples can only be stored in chilled rooms for a time not longer than 6 months, that too with a relatively high quality loss. Moreover, due to the lack of protocol for post harvest handling, quality losses in storage due to drying out of apples is common. Due to this, farmers have started to sell their produce directly to traders in India with the risk of having no influence on sales prices. There is no traceability system in place. Most apple orchards in India are old and the low productivity and poor quality of apples is linked to monoculture of a few old cultivars (older than 30 years) that have degenerated over the years and hence cannot cater to the growing demand for bright red apples. Further, research and extension work specifically has not yielded results on
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-----------------------------------------------------------------------------------------------------------the ground partly due to the low priority of government on horticulture compared to staples. This offers a potential opportunity for the Australian companies to develop new varieties such as Red Chief from Australia which is currently imported from Chile. Training in production, post harvest process, traceability and development of protocol in these processes are other opportunity areas 5.5.3 Consumption and Demand The current consumption of apple in India is 1.2 kg per capita/year and the total market demand is estimated to be 1.74mn tonnes. There has been no significant increase in per capita consumption of apple over the last ten years
Exhibit 5.9 : Market Demand and per capita Apple Consumption

1 .6 kg per capita /year 1 .2 0 .8

2 .0 1 .6 1 .2 0 .8

0 .4 0 .0 1995 2000 2005

P e r c a p ita C o n s u m p tio n

0 .4 0 .0
M a rk e t in M n to n n e s

Apples are generally the most expensive of Indias major domestically produced fruits followed by grapes. Other major fruits, including bananas, mangoes, and oranges are produced and consumed in larger quantities than apples and their wholesale prices are significantly lower than apple prices in most of the seasons.
Exhibit 5.10 : Average wholesale price of main fruits (INR /kg)
60 Wholesale Price 50 40 30 20 10 0 Apple
FINAL REPORT

Mango

Banana

Grapes

Oranges

Million tonnes

--------------------------------------------------------------------------------------------------------

39

-----------------------------------------------------------------------------------------------------------Apple demand is highly price elastic and the Indian customer preference is for Red colour Sweet taste Crunchiness Uniformity in shape and size

Exhibit 5.11 : Cost build-up for domestic apples in India

Supply chain Farmer realisation Farmer Cost Commission agent Farmer Sale price Wholesaler cost Wholesaler margin Wholesaler sale price Sub wholesaler margin Sub wholesaler sale price Retailer Cost Retailer Margin Consumer price USD/20 kg box 6.6 1.9 0.7 9 0.1 1.9 11.2 2.2 13.4 1.4 5.1 20.0 25 16 17 % Margin

The poor quality of domestic apples is largely due to poor grading, packing, refrigeration and transport practices. Opportunities exist for Australian companies to develop cost effective CA storage systems, which could store apples for longer durations. 5.5.4 Processing Less than 1% of apple production is being processed in India. Main processed products in apple are Apple juice concentrate, jams, and squashes. Processing cost is usually USD 1/kg of Apple concentrate (6kg of apples required for 1 kg of concentrate, apple procurement cost for processing is USD 0.09/kg). Usually culled fruit from the table grade is used for processing. Processable varieties of apple is absent in India. Even the main variety Maharaji is a sour variety. As most of the apples, irrespective of quality, are sold in the market as table apples, there are not enough apples available for being processed. There is a dearth of quality storage facilities for apple and an estimated CA storage capacity in the country is about 24000 tonnes. Though the private entrepreneurs are
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-----------------------------------------------------------------------------------------------------------interested in setting up CA facilities, currently the capital expenditure cost for CA facility is prohibitively high at USD 560/tonne. In terms of processing apples, basic requirements on food safety (HACCP) and food hygiene are fulfilled. However, there is a need for further improvement on the quality aspect. Currently there is no facility for specific training of operators working in apple processing plants and no organization available for specific product development in processed apple varieties. HPMC Himachal Pradesh Horticultural Produce Marketing and Processing Corporation Ltd. (HMPC), is a state public undertaking set up with the objective of marketing of fresh fruits and processing of all types of surplus fruits. HPMC is producing a variety of processed products. HPMC has fruit processing plants of about 20,000 Tonnes capacity. It is the main producer of Apple Juice Concentrate in the country. Besides, Apple Juice Concentrate, the Corporation is producing concentrate of Orange, Pear, Plum and Strawberry besides pulps of all the above fruits. It is also producing various squashes, jams, canned products, apple cider, cider vinegar, Apple and Plum wine, juices in tetra paks, natural and blended juices, baby corn, mushroom in brine and varieties of pickles. 5.5.5 Trade
Exhibit 5.12 : Fresh apple imports

35 30 (000' tonnes) 25 20 15 10 5 0 99-00 01-02 02-03 04-05 00-01 03-04 05-06

Imports in apple had been growing since 1999 after the trade liberalization and is on the rise in the year 2006-07 touching about 75000 tonnes with a year on year increase of 50%. Apple imports have a seasonality window of December to July. Imports are mainly from United States and include Washington Red Delicious Varieties followed by Chinas Fuji Variety apples and other imports from Chile, New Zealand and South Africa

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-----------------------------------------------------------------------------------------------------------of varieties such as Royal Galla, Granny Smith, Golden Delicious, Pacific Series and Red Chief. Among the Australian apples, Tasmanian apple (Hi Early and Top Early) is in high demand. The share of Australia in Indian apple imports has been about 45% in 20002001 and, it has decreased to 14% and it is expected further reduce to 5% in 2006-07. (Refer Exhibit 5.13)
Exhibit 5.13 : Share in Apple imports
Fresh Apple Imports (2005-06) 14% 8%

52% 8% AUSTRALIA NEW ZEALAND C HILE US A

18%

C HINA P RP

Fresh Apple Imports(2000-01)

2% 3% 4% 5% 42% 2% 4%

16% 22%

AUSTRALIA SOUTH AFRIC A FRANC E

US A U ARAB EMTS ITALY

NE CH OT

Exhibit 5.14 : Retail prices of import apples

Apple Variety Green Apples (Granny Smith) Fuji Red Delicious(Washington) Royal Galla Golden Delicious Red Chief Pacific Series Source Rabobank research

Origin US, Australia China United States New Zealand

USD/kg 2.5 to 4 1.5 to 2 2.5 to 3 2 to 2.5

Chile, South Africa, US

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-----------------------------------------------------------------------------------------------------------Imported apples are usually available at 2-3 times domestic apple prices. This is primarily due to the customs duty of 50% on the CIF (Cost insurance freight) price and subsequent mark up in the marketing chain by the intermediaries as given below.
Exhibit 5.15 : Price build up Imported apples
USD/20 kg box CIF Price Customs Duty (50%) Landed Price (ex- port price Including tariff clearance, freight , commissions) Importer margin Importer Sale Price Wholesaler margin Wholesaler Sale price 2.5 33.5 2.2 35.7 20-30% Retailer Margin Domestic transport & Storage 8.9 (if any semi wholesaler 5% is deducted) cost till the consumer Consumer price 1.4 46 5-8% 6-10% 31 20 10 % Margin added

The transit time to India from various origins of imports and the CIF prices/20 kg box is as given below;
Exhibit 5.16 : Transit time for import apples and CIF prices

Transit Time 24 days Australia 30 days-US 50 days-Chile

CIF price/20 kg box USD 18-23 - US, Australia USD 17-20 - Chile USD 12-15 China

Quarantine restrictions and import tariff for apple are applicable. Taxes such as VAT, central Sales Tax in the respective states are applicable. In addition to quarantine restrictions, the imported produce are required to comply with mainly PFA (Prevention of Food Adulteration Act) which stipulates Maximum residue levels (MRLs) for particular pesticide residues and if in case the relevant pesticide is absent, Codex Standard is followed.

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-----------------------------------------------------------------------------------------------------------As seen from the trend, it is likely that Australias share in the Indian apple market will continue to fall as there has been a decline from 210 containers in 2005-06 to 50 containers in 2006-07 and the following were the few reasons which came out from the primary research; High demand in Australian market and less availability for exports (shrinking production base in Australia) Only select importers from India allowed to import from Australia China is gaining market share in India significantly owing to the fact that Chinese apples are highly competitive in the Indian market on the basis of price and increasingly accepted on the basis of quality. There is huge potential for Australian apple imports as the import apple market in India is growing at the rate of 50% and transit time for the Australian produce is considerably less as compared to other competing countries such as Chile and South Africa.

5.6 Stonefruits (Peaches, Plums, Nectarines, Cherries)

5.6.1 Production The current production of stonefruits is mostly in the high and low hill regions such as Jammu and Kashmir (J&K), Himachal Pradesh (H.P.) and Uttarakhand. Cherries are mostly grown in J&K. Nectarines are not widely cultivated in India
Exhibit 5.17 Stonefruits production regions:

Annual production estimates for stonefruits by FAO is 240,000 tonnes. However, as per the various horticultural departments and central institutes for temperate fruit
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-----------------------------------------------------------------------------------------------------------production, the figures are estimated to be approximately 80,000 tonnes. Stonefruits are mostly cultivated under rainfed conditions. Cherries are mainly produced in Kashmir and the variety available in the market is Napolean. Like other temperature fruit crops, the production of stonefruits in India is largely traditional and is characterised by substantially low productivity when compared with world average as can be seen from Exhibit 5.18
Exhibit 5.18 Stonefruits Average Indian and World productivity:
Stonefruits Plums Peaches/Nectarines Apricot Cherries Average Indian productivity (tonne/ha) 1.27 2 0.9 2 Average World Productivity (tonne/ha) 4 11 7 5

Like most other temperate fruit production in India, supply side remains weak and there exists ample opportunities for intervention in production technology transfer as listed below; Varieties with high keeping quality: This would enable access to large consuming markets such as New Delhi and Mumbai High density planting techniques could be adopted: The current production is traditional and of low productivity and therefore does not generate a commercial interest especially with the perishable characteristics of the produce and high intermediation. High density planting of these produce is required to be adopted. Micro irrigation technology: The current production is mostly rain fed and hence to ensure consistent production, appropriate micro irrigation technology is required. Diversification of maturity: The stone fruits produced from various locations to be marketed at different timings to avoid glut and distress sale Good Agricultural Practices: Scientific production and post harvest practices are crucial for quality production which is currently lacking in the existing production system. High perishability of stonefruits compared with other temperate fruit crops is limiting the market access of the stonefruits considering the cold chain infrastructure required to reach the main markets such as New Delhi and Mumbai. Consequentially, the growers are not incentivised to invest in commercial cultivation with targeted markets. This is also a deterrent for retailing due to low volumes and high prices. Cold chain logistics for fresh produce segment as a whole as highlighted earlier and for temperate fruits such as stonefruits are a prospect in itself.

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-----------------------------------------------------------------------------------------------------------5.6.2 Consumption and Demand Stone fruits sales are seasonal corresponding to the domestic production and are supply driven and the current market is estimated at 800,000 Tonnes including imports. Usually the peaches, nectarines and plums from the state of Uttarakhand arrive early in domestic markets and are largely restricted to the markets in Northern India. Cherries are currently airlifted from J&K to Delhi
Exhibit 5.18 : Stonefruits retail prices:
Stonefruits Peaches/Nectarines/Apricots Cherries Peaches/Nectarines/Apricots( Imported per kg USD 1.5 to 3.2 USD 1.2 to 2.5 USD 3.1 to 8.4

Market demand has been mainly supply driven which peaks during the season and then declines leaving off-season imports very minimal. Stonefruit imports are marginalised by the importers due to low volume and high perishability. Market creation is the major challenge in stonefruit which needs intervention at various levels to build up a critical mass such as : Marketing and promotion programs at retail malls e.g. A campaign to expand market share of Washington apples was carried out by the Washington Apple Commission, a U.S.-based agency that promotes apple exports from the orchards of Washington State, by creating awareness about Washington apple in bigger and smaller towns of India. Washington apple accounts for about 50 per cent of the apples imported into India. 5.6.3 Processing The current processing of stone fruits is mainly done in the unorganised sector. There are few initiatives from Mother Dairy and HPMC which processes pulps and concentrates of peaches and plums and canned peaches and cherries preserved in syrup. Volumes of these are small and are limited in availability. One of the main factors which inhibit the production of the stonefruits is its high perishability.This reduces the marketability of these fruits as it requires cold chain infrastructure. Opportunity for investment in this area would be a fillip in new processed products such as fruit fillings and fruit preserves acceptable in the market.

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-----------------------------------------------------------------------------------------------------------5.6.4 Trade The imports of Peaches & Nectarines are estimated at 70 Tonnes while that of plums and apricots are 200 tonnes each. Plums are mainly imported from US, Australia, Chile, Spain and Nectarines and Peaches from Australia. Cherries are mainly imported from Chile & US. The airfreight is USD 10-14 per kg.
Exhibit 5.19 Stonefruits Imports:
300 250 Kg (000's) 200 150 100 50 0 99-00 01-02 02-03 04-05 00-01 03-04 05-06

P E A C H E S I N C L N E C T A RI N E S FRE SH A P RI C O T S FRE SH P L U M S A N D SL O E S , FRE SH

Opportunities

Drive the market through the apple trade channels such and ensuring regular off take from importers

5.7 Berries
5.7.1 Strawberry Strawberry has attracted a lot of attention in the past two years as there has been considerable growth in the Indian market during this period. There is limited data available on the strawberry production and most of the information is largely based on discussions with stakeholders. Total production in India is estimated at 12000 tonnes with a growth rate of 3-4% per year. Production season extends from December to May and the varieties grown are Chandler, Camarosa, Sweet Charlie and Selvia. Availability of quality strawberry seedlings, which is usually imported from California is a limitation for strawberry production. The production areas are given in Exhibit 5.21. Maharashtra (state in Western India) is the main production region with a relatively high productivity of 7 tonnes /ha.

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-----------------------------------------------------------------------------------------------------------Exhibit 5.20 : Strawberry production regions and area

Production regions Maharashtra Delhi and Punjab Jammu and kashmir Himachal Pradesh Tamil Nadu North East Area Covered (Ha) 600 160 100 20 40 10

Currently the domestic demand for strawberries is estimated at 15000 tonnes per year against a supply of only 12000 tonnes. The current farm gate price is 1 USD/kg and the retail price is at USD 2 to 3 per kg. It is estimated that 15% of the current production is utilized for processing of crushes, syrups and jams etc. In view of the growing production of quality fruits especially in Maharashtra region, there is an export potential of at least 3000 tonnes. Imports of strawberries were limited to sporadic supplies from Australia & France in 2002 and 2003. CIF prices are currently USD 7-9/kg which is significantly higher than domestic prices. The customs tariff for strawberry imports is 30%. Australian companies can provide technical expertise in enhancing the productivity, cost effective processing technologies as well as assist in new product development for processed products. 5.7.2 Blueberries and Raspberries There are no market estimates for these products as the consumption in India is currently negligible. The suitable growing regions are the high hills ranging from Kashmir to Himachal Pradesh as these regions offers a chilling season required for the berries. Current channels mainly focus on elite hotels and gourmet restaurants. In case of imports, the short life cycle and low shelf life characteristics of the product requires airfreight which adds to the cost. As a high degree of temperature control is required at the retail level, the cost build up could be a deterrent for large-scale market penetration. The customs tariff for blueberries and raspberries imports is 30%. Opportunity High perishability of the product is the limiting factor for regular import supplies, especially as the market is at an evolving stage. This would present an opportunity for Australian partners to adopt a production tie-up route for building the market. In case of strawberries, it has been witnessed that the adoption of new high yielding attractive varieties has led to market development. The production tie-up would comprise;

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----------------------------------------------------------------------------------------------------------- Identify strategic partners with specific areas of interest in commercial production and expertise in the similar fruits and long term investment to develop the supply chain Set up model orchards (e.g. in Himachal Pradesh)

Market build up of products could be achieved through; Institutional channel tie-ups with hotels and food service industry Creation of brand with focus on health benefits New processed products and processing technologies with berries to be used as fruit fillings, ice creams

5.8 Broccoli and Broccolini

It is estimated that the total market for Broccoli is 3500 -4000 tonnes per year.
Exhibit 5.21 Broccoli production regions

Supply of broccoli is largely regional and the main supply to the New Delhi market is from Himachal Pradesh. The Mumbai market is supplied from Nashik and Pune. Institutional market, which includes food service, restaurants (mainly Chinese) and hotels are the main consumers. The food service industry procures broccoli from dedicated suppliers as well as from the wholesale market. Current retail price for broccoli is about USD 2.7-3.5 per kg and the product is price insensitive according to the retailers. Broccolini is unheard of in the Indian market and would require serious market development initiatives.
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------------------------------------------------------------------------------------------------------------

Opportunity Work with organized Indian growers in productivity improvement to provide year round supply initially targeting the food service industry Gradual extension to the retail as the demand picks up.

5.9 Frozen vegetables

The market for frozen food is expected to grow to INR 8 Bn (USD 177 Mn) in the next 4-5 years. Main drivers of the frozen food market are convenience, busy lifestyles, nuclear families, awareness of product safety, freshness and exposure to westernised culture. Sales will remain predominantly via supermarkets/hypermarkets and mainly in urban areas due to the lack of cold storage in other types of retail outlet. Overall sales remain restricted to the urban elite who can afford to purchase frozen processed food from retail outlets. Frozen processed food is highly price sensitive among middle and low income consumers. Prices have remained almost the same due to competition. The domestic frozen vegetables market is estimated at INR 4 Bn (USD 95 Mn) which is mainly divided into; Frozen processed vegetables - INR 3000 Mn (USD 67 mn) Frozen french fries INR 1000 Mn(USD 22 mn)

Frozen vegetables have a bigger market in North and West India. Non-vegetarian frozen food, especially frozen processed fish/ seafood, is enjoyed mostly by people in southern and eastern India, due to proximity to the sea. Frozen vegetables accounts for 62% of the frozen processed food market. It is expected that the frozen processed vegetables will continue to be dominant with varieties such as sweet corn, baby corn, mix vegetables, French beans, cauliflower florets and peas. Customs tariff for imported frozen vegetables is around 30% and there is no excise duty. Frozen peas account for 69% of the frozen vegetables market. Over 95% of the All India production of frozen peas is consumed by the local market. The market is estimated to be growing at 8-10% per year with Mother dairy (Safal brand) occupying a market share of 65%. Peas have an advantage in frozen category due to its seasonality and the frozen form guarantees year round availability.

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-----------------------------------------------------------------------------------------------------------Exhibit 5.22: Production of frozen peas

Key players Mother Dairy Chambal Punjab Agro Others Total

Production in 2006 (tonnes) 20000 15000 5000 20000 60000

Opportunities To provide technology for advanced freezing process and equipments. New product variants of peas such as sweeter varieties and green peas based snacks could be introduced in niche urban consumer markets e.g. The marketing of Green Giant Sweet Corn of US in India had targeted the snack segment of the processed vegetables

Exhibit 5.23 : Retail prices of the frozen food item Items

Frozen peas Frozen French fries Frozen Super Wedges Frozen Mix Veg Frozen Aloo Paratha (Potato filling in cooked Indian Bread) Frozen Aloo (Potato) Burger Patty Frozen Pizza Frozen Sweet corn

unit
kg 450g 450g 400g 4 units 1 unit 400g 500g

INR
80 50 45 43 40 40 50 50

USD
1.9 1.2 1.1 1.0 1.0 1.0 1.2 1.2

Frozen French fries offers a prospective market in India given the growth of the retail and food service market. Growing affluence in the middle class and demand for convenience, quality and snacking are the main drivers .The current domestic market is estimated at 8000 tonnes per year and has an export potential of 36000 tonnes per year. Though the market for French fries initially had taken the route of food service, the trends indicate that the demand is increasing at the food retail level which is currently import oriented.

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-----------------------------------------------------------------------------------------------------------A strong distribution network and technology made McCain Foods India the leader in frozen processed potatoes, followed by Al Kabeer Exports and Amalgam Foods and Beverages. Due to stiff competition, prices have remained constant. Opportunities Technology tie-up with retail fast food chains in India who are currently moving to local sourcing such as McDonalds to source local French fries through McCain Foods this year Satnam Agri Products Ltd is setting up an integrated plant in Punjab (North India) to make frozen French fries with capacity of 1 tonne /hr (machinery imported from The Netherlands). It is expected to provide French fries at USD 1.4 -1.5/kg Developing suitable potato varieties for the making of french fries and potato wedges. Except for one variety , Kufri Chandramukhi, local potato varieties do not match requirements in size, shape or even taste for making fries and wedges. Opportunities exist for production tie-ups to develop suitable varieties and contract farming of potatoes to eventually setup a low cost sourcing base for processable varieties of potatoes in India. According to the industry sources, diced potato is still an untapped area market with high potential. Other frozen vegetables Market share in Value terms of other frozen vegetables are as follows : baby corn (3.5%), carrot mix (4%), cauliflower florets (3%) French beans (2%) and vegetable mix (9%). These have remained largely unchanged from 2005. Opportunities exist for developing frozen vegetable products in orange carrot (coreless), string less beans, white onions, red and green capsicum etc

5.10 Fruit based beverages

According to Euromonitor reports, fruit based beverages off-trade volume sales grew by over 12% over the previous year to 220 million litres in 2005. In terms of value, this translated into sales of USD 256 million, with a current value growth of 14% in 2005 over the previous year. Sales were boosted in 2005 by the changing lifestyles of the Indian middle-income group. Indian mothers also consider packaged fruit juice to be a healthy and tasty option for children and prefer it to unhygienic roadside fruit juices. This resulted in a migration of consumers from carbonates to fruit based beverages with schools leading the way.

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-----------------------------------------------------------------------------------------------------------Fruit based beverages continues to be dominated by juice drinks, which accounted for over USD 186 million of the USD 256 billion off-trade value sales of fruit/vegetable based beverages in 2005. However, 100% juice products led in off-trade value and volume growth at 26% and 23% respectively in 2005 over the previous year growing from a smaller base. Juice drinks is available in smaller packs and at price points as low as 0.06 USD for a 65ml pack. This appeals to a much wider consumer base than 100% juice which is generally available in one-litre packs and was priced at USD 1.6 per litre in 2005. This resulted in juice drinks accounting for 85% of the off-trade volume sales of fruit/vegetable juice in India in 2005.
Exhibit 5.24 : Fruit based beverages segment
Category 100% Juice Juice drinks (upto 24% juice) Fruit/Vegetable Juice (TOTAL) (mn lts) 33.7 186.4 220.1 (USD mn ) 59 197 256

The competitive landscape is presented in Exhibit 5.25 below.

Exhibit 5.25 : Market share of various companies
Brand Frooti Maaza Real Tropicana Slice Real Activ Others Total 100.0 Company Parle Agro Pvt. Ltd. Coca-Cola India Pvt. Ltd. Dabur Foods Ltd. Tropicana Beverages Co. Pepsico India Holding Pvt. Ltd. Dabur Foods Ltd. % Value 30.0 29.2 9.3 9.2 9.0 2.8 10.6 100.0 100 % Volume 34 33 6.4 6.4 9.2 9.2

Source: Euromonitor

Many street stalls/kiosks prepare different juices from fresh fruits and these are generally perceived by consumers as being fresher than the packaged juice. North India dominates regional sales of fruit based beverages market with a share of 44% of the total fruit juice segment and a growth of 12%. Traditionally, North India consumes much more fruit based beverages than any other region, as high quality fruits and vegetables are always readily available in the region. Many state governments such as Himachal Pradesh and Uttaranchal offer excise and sales tax exemption for food processing industries. Consequently, the region is a very attractive
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-----------------------------------------------------------------------------------------------------------destination for new players. Traditionally being a hot drinks region, South India accounts for only 15% consumption followed by East and North East India. However, consumption in the Southern region is expected to grow due to the increasing retail presence. Orange accounted for 32% of 100% juice volume sold in 2005. Orange is the traditional favourite and continues to lead because of the ease with which oranges can be converted into juice and the familiarity of Indian consumers with the tangy taste of orange. Mango, apple and mixed fruits are other prominent fruit juice flavours. While apple is popular in North India, mango finds acceptance mainly in South and West India. The decline in share of orange and apple flavour within 100% juice in 2005 was a result of the launch of several new varieties in cranberry, fruit and vegetable combinations from leader Dabur Foods Ltd. The volume share of the new flavours, included within other flavours, rose to 30% in 2005, growing by five percentage points over the previous year. Several new flavours, especially fruit and vegetable combinations, are positioned as complete health beverages that contain all the major nutrients, including vitamin C. Dabur and Tropicana Beverages Co also made these new flavours available throughout the year, taking advantage of a developing cold chain network in India. Since imports were liberalised in 2001, foreign brands of fruit/vegetable juice became visible at select locations in India by the end of the review period. However, the massive spurt in organised retail that occurred in the cities of Mumbai and Delhi in 2003 and 2004 gave a ready platform for the display, trial and sale of new flavours of fruit/vegetable juice. Even though these imported brands are priced at a premium of at least 25% compared to Indian brands, consumers are increasingly willing to buy them. Consumers higher disposable incomes are leading to a greater appreciation of new flavours and imported brands. In juice drinks (up to 24% juice), Mango maintained its dominance with a 90% share of off-trade volume sales in 2005. Mango is traditionally seen as a summer fruit. However, the advent of organised players has made the pulp available all year around expanding sales throughout the year. The fruit is widely cultivated in almost all regions of the country and is also accepted as a popular flavour, which helped mango retain its predominance as the preferred juice drink flavour. Apple is a more regional fruit and is primarily cultivated in parts of North India.
Exhibit 5.26 : Percentage share of leading flavours for 100% Juice and Drinks
Fruit flavour Juice Fruit Drinks

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-----------------------------------------------------------------------------------------------------------Fruit flavour Apple Mango Mixed Fruits Orange Other Flavours Juice 13.0 20.0 5.0 32.0 30.0 5.0 Fruit Drinks 5.0 90.0

In 2006, the fruit based drinks segment has registered growth rates as high as 25% and market share of about 356 mn USD. This is impressive considering the fact that the USD 1.4 bn carbonated soft drinks market in India is growing at the rate of about 8 to 9%. Carbonated soft drinks, as a category, is expected to further drop in market share owing to the general move towards health drinks and pesticide residue controversies. This is evident from the market growth experienced in this segment by even small players such as Appy fizz, an apple drink which saw a 113% jump in volume and value in 2006 over 2005, though over a small base. For Dabur Foods, which has brands Real, Activ and Coolers, the plan is to increase focus on Activ (which is a 100% juice brand) and Coolers (a drink brand) this year. Leading fruit drink brand Maaza saw volumes grow 32% in 2006 over the previous year, while Parle Agro's mango drink Frooti saw 18% growth in volumes last year. There has been a hike in prices in the fruit juices segment last year owing to rising fruit prices globally.
Exhibit 5.27 : growth rates
Sub segment % Pulp content Market size (mn USD) Main players and market share in sub segments Cokes Maaza (37%) Fruit drink > 20% 2.7 Parles Frooti (22%) Pepsis Slice (16%) Daburs Real Twist (new Entrant) Fruit juices/nectar Source: Rabobank estimates 35-85% 0.9 Daburs Real (55%) Pepsis Tropicana (31%) 18% 28% Growth rate

Fruit based beverages sub segments, market size , brand share and

Opportunity In view of the growth in organised retail and growing health consciousness among the urban population and rising incomes of the middle class, the concept of juice bar chains exclusively serving variety of juices is considered to be a potential opportunity given Australias strong expertise in the juice bar chains. Opportunities also exist for developing flavours/pulp/concentrates of various fruits, on the back of Indias production strengths in various fruits. This could be achieved through joint ventures or technology partnerships for new product development.

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------------------------------------------------------------------------------------------------------------

Chapter 6 Dairy
6.1 Introduction
World milk production is estimated at 619 million tonnes (2004-05) growing at 0.8%. India ranks first in terms of milk production. Indian annual milk production stands at 97.1 million tonnes (Year 2005-06) growing at 4 percent per year. India contributes 4 million tonnes to the worlds incremental production of 7.5 million tonnes. India is among the worlds largest and fastest growing markets for milk and milk products. Despite a higher growth rate, the per capita availability of milk in India (241 grams per day) is lower than the world average (285 grams per day). India has 791 dairy plants and installed capacity of 98.2 million liters/day. The market size for milk and milk products is INR 1169 Bn (USD 27 Bn), growing at nearly 7.6 percent annually. Buffalo milk is now estimated to account for 57 percent of total milk production in India. This is reflected in the fact that buffalo milk production has grown at 4 percent per year while cow milk production has grown at 1.2 percent per year. One of the reasons is that buffalo population in India is increasing at 1.2 percent per year while cattle population has declined by 1 percent in the last five years.

6.2 Milk production

Indian annual milk production stands at 97.1 million tonnes (Year 2005-06) and is expected to reach 100 million tonnes by 2006-07. Indian dairy production accounts for approximately 15 percent of total world dairy production.
Exhibit 6.1 Milk production in India

120 100 Million tonnes 80 60 40 20 0

20 00 -01 20 01 -02

80.6

84.4

86.2

88.1

92.5

97.1

Source: Ministry of agriculture, Govt. of India

20 04 -05 20 05 -06

20 02 -03 20 03 -04

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-----------------------------------------------------------------------------------------------------------It is estimated that by year 2010 the milk production of India will touch 111 million tonnes. 6.2.1 Milk Productivity India has the largest population of cattle (186 mn) and buffaloes (97 mn) 4 in the world but the average milk yield of milch animals is less than one fifth that of Australia.
Exhibit 6.2 Milk yield in various countries
Country India New Zealand Australia Netherlands USA Source: FAO Average Yield (Kg per year) 940 3787 5186 7296 8504

The reasons for lower yield of cattle are as follows 1) Improper rearing and management of milch animals Proper care is not taken of the new born heifer in India e.g. the nutrition requirement of the new born is not met, as a result the calving takes place in 48 months instead of 24 months Proper care is not taken during pregnancy resulting in mortality rate of as high as 4-5% The same amount of feed is given to dry animal, milch animal as well as gestating animal. No differential feeding exist to these animals during different stages of their life cycle Only 60% of AI (Artificial Insemination) cases are successful in India

2) Feed input Feed of animals is primarily in the form of green and dry fodder Concentrate feeding is less practiced, resulting in poor yield of milk Left over human food is often offered as feed for animals Feeding mineral mixtures based on the deficiency of mineral content of the feed given to the animals is rarely practiced Cattle are given same feed throughout the year

Year 2003-04, Source; Ministry of Agriculture Govt. of India

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-----------------------------------------------------------------------------------------------------------3) Small dairy farms Most of the milk production in India (more than 80%) takes place in clusters of landless, small and marginal farmers Most of the milking in India is done by women, who lack knowledge on modern feeding/rearing techniques. Extension services does not usually reach the target population Data base of the animal feed, animal milk yield etc. is not available and hence analysis and further improvement on these aspects is a challenge Most of the diseases to animal occurs because of lack of knowledge of rearing the animals There is a tendency of not increasing feed input for achieving higher output Clean milk production becomes a challenge owing to small dairy farm sizes

4) Climate India has a tropical climate (Hot during summers and cold during winters) Since around 54% of milk is buffalo milk there is huge difference between the availability of milk in flush (winter) and lean (summer) season The ratio of lean season to flush milk season yield in case of buffalo is 0.7

5) Genetic breed Indian milch animals give lesser yield compared to exotic ones Cross breeding with exotic varieties have been done to increase the yield of native varieties The data bases of these cross breeds have not been properly maintained. Further, cross breeding based on high yielding bull etc. is not being carried out Heat detection in animals is a big problem for AI in India (Particularly in buffaloes since it has silent heat) Thus, there is huge opportunity particularly in developing feed technology, advanced large scale dairy farms and in biotechnology to bridge the lean flush divide. The per capita availability of milk in India is growing steadily at an average growth rate of 3.8 percent per year. By 2011, it is expected to reach 280 gm/day when the population of India is expected to reach 1178 million.

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-----------------------------------------------------------------------------------------------------------Exhibit 6.3 Per capita consumption of milk in India

245 240 Grams per day 235 230 225 220 215 210 205 220 225 230 231 233

241

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

Source: Ministry of Agriculture, Govt. of India

6.2.2 Unique Pattern of Milk Production and Collection India has a unique pattern of production and milk collection. Approximately 80 million rural Indian households (primarily small and marginal farmers and landless labourers) are engaged in milk production. Over 12 million farmers are organised into about 0.11 million village Dairy Cooperative Societies (DCS) (about 110 farmers per DCS). DCSs handle about 18 million kg of milk per day. These cooperatives form part of a national milk grid that links milk producers throughout India with consumers in more than 700 towns and cities and bridges seasonal and regional variations in the availability of milk. Most private dairies use a mix of village-level collection centres (VLCs) and agents/contractors. In northern India, the use of agents/contractors is more prevalent than in other parts of India. This use of agents is also responsible for guaranteeing the quality of milk in the north. The government model of milk procurement is specific to the state of Maharashtra where milk production is subsidised. The government collects the milk and sells it at a lower price to private dairies and cooperatives. 6.2.3 Review of current policies and National programmes aimed at

productivity enhancement MMPO- Regulatory Scheme Until March 2002 the industrys production capacity was regulated by the Milk and Milk Products Order (MMPO). However, with the termination of this requirement,

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-----------------------------------------------------------------------------------------------------------companies are free to set up capacity anywhere in India. Indian

producers/processors do not receive any subsidies for domestic sales or export. Imports, however, are effectively blocked by high import duties. The MMPO stipulates registration of all units handling more than 10,000 litters of milk per day or 500 Mt milk solids per annum. Currently there are 791 dairy processing plants registered under the MMPO having installed capacity of about 98.2 million litres of milk per day. Private sector accounts for 63% of the processing units and 46% of the processing capacities. Infrastructure for quality and clean milk production Objective of this scheme is to create necessary infrastructure for production of clean milk from farmer level to the point of consumption and create awareness about importance of clean milk. The basis of funding under the scheme is 100% grant in aid for all the components except bulk coolers for which the financial assistance is shared in the ratio of 75:25 between the Government of India and the respective dairy cooperative/milk Union. Since the inception of the scheme, 98 projects with a total out lay of INR 1.25 billion has been approved. Beside this, National dairy development board (NDDB) has launched a Clean Milk Production programme focusing on health and hygiene, house keeping, society management, village-level bulk milk chilling, transportation of raw milk to plant and handling at plant reception. Dairy Venture Capital Fund (managed by NABARD) Government of India launched this scheme with the aim of bringing structural changes in the unorganized sector through measures like milk processing at village level, cost effective marketing of pasteurized milk, up gradation of quality and technology. Assistance under this scheme shall be provided to bankable projects. The assistance will be provided for establishment of dairy farm, purchase of dairy processing equipments, dairy product transportation facilities, milking machine and establishing veterinary clinics. Department of Animal Husbandry, Dairying & Fisheries, Government of India would be implementing the scheme through NCDC (National Cooperative Development Cooperation/NABARD (National Bank for Agriculture and Rural Development). Integrated dairy development project in Non operation flood, hilly and backward areas Backward areas with low potential for milk production require more sustainable effort. To support these efforts, the integrated dairy development project in non

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-----------------------------------------------------------------------------------------------------------operation flood, hilly and backward areas was launched on 100% grant in aid basis. The objective of the scheme is to develop milch animals, increase milk production, cost effective procurement, processing and marketing of milk and improve social, nutritional and economic status of people in backward areas. The scheme has benefited 960,000 farm families organized into 15,519 village level dairy cooperative societies producing 1.213 million litres of milk per day. Assistance to cooperatives Some of the cooperatives formed turned sick due to low capacity utilization, plant inefficiency and high cost structure. To address the issues of these cooperatives and revitalize them, the government of India initiated an assistance scheme. The scheme is implemented on 50:50 sharing basis between government of India and state government. So far rehabilitation of 31 milk unions have been approved with a total out lay of INR 1.65 billion. Livestock insurance scheme The scheme provides assured protection to farmer and cattle rearers against eventual loss of animal. In the first phase only high yielding and cross bred cattle and buffalos are insured. Under this scheme, Government will subsidize the premium for two animals per person under this scheme. 6.2.4 Quality control and quality assessment mechanism for milk at the point of collection / aggregation (dairy) There is a strong correlation between the quality of raw milk and the quality of the processed product. The bacteriological quality of raw milk in India at the time of milking is comparable with that in leading milk exporting countries (including EU, Australia and New Zealand). However, there is significant deterioration in milk quality from farm to factory. The deterioration takes place on two accounts: Infrastructure issues (lack of all-weather roads, electrical supply for chilling centers, potable water supply, and sewage disposal). Contamination through equipment, loss of time and lack of temperature-controlled storage/transportation.

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-----------------------------------------------------------------------------------------------------------Exhibit 6.4 Milk transportation and storage from farm to manufacturing unit
Farmer Equipment Time (hours) (duration to transport from farmer to destination) Temperature Ambient Ambient 4-5oC 4-5oC Source: Industry, Interviews with producers, collection agents, Rabobank analysis Utensils/ vessels 0 Collection Centre Handling equipment 2-3 3-5 6-9 Chilling Centre Containers Cans Dairy

The

time

lag

coupled

with

transportation

at

ambient

temperature

results

in

deterioration of quality in terms of sensory properties (odor, taste, colour), composition (fat, SNF, protein, etc), hygiene (bacteriological - pathogenic, somatic cells) and also leads to adulteration (water, foreign substances). The impact of the time lag and temperature during storage/transportation, on bacterial count in milk is shown in Exhibit 6.5.

Exhibit 6.5
Temperature 4.4C 10C 15C

Bacteria count in milk at various temperatures and time intervals

Figures in Standard plate count per ml (in 000) Fresh 4 4 4 24 hours 4 15 1600 48 hours 5 125 33,000 72 hours 8 6,000 326,000

Source: Industry Estimates

An incremental increase in temperature prior to pasteurization can lead to an exponential increase in bacteria count in milk (EU standards allow a maximum of 100,000/ml). Hence, transportation and storage in controlled temperature conditions is critical to preserve the quality of milk. However, cooling does not replace the need for hygienic milking conditions. An example of the impact of milking conditions on quality is described in Exhibit 6.6.
Exhibit 6.6 Bacteria count in different milking conditions
Figures in Standard plate count per ml (in 000) Temperature Clean cows, environment and utensils Dirty cows, environment and utensils Source: Industry Estimates Fresh 4 136 24 hours 4 281 48 hours 5 538 72 hours 8 749

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-----------------------------------------------------------------------------------------------------------The solution to these issues lies in identifying and addressing handling, storage and transportation practices from the producer to the dairy plant and onward to the consumer and facilitating improvement of hygiene, sanitation, food safety and operating efficiency in dairy plants. Installation of bulk cooler/chiller in radius of 10-15 Km can improve milk quality and reduce wastage. Hygiene quality of raw milk needs to be improved to ensure milk product of highest standard. In India payment for milk is generally based on fat and SNF content. No incentive in given for hygienic milk quality. Payment for milk based on the microbiological load needs to be initiated. Most of the cooperative dairies and many large private dairies in India have obtained ISO and HACCP certification. The level of traceability in these plants is fairly good. Customer complaints are being seriously attended by these companies. The small dairy firms and the unorganized sector do not have these quality standards, mainly because they are not keen to invest in setting up infrastructure for obtaining the certification. There is also a lack of awareness among the consumers of milk products about quality standards viz. ISO and HACCP. Moreover the certification costs are high and the small players are not ready to take the hit. Most of the branded products are sold by large players and the small players mostly sell in unbranded form. 6.2.5 Current levels of backward linkages and forward linkages The Dairy Cooperatives have been organised into a three-tier structure with the Dairy Cooperative Societies (DCS) at the village level federated under a Milk Union or District Union at the district level and a Federation of member Unions at the state level. There are around 12 million farmer members of the dairy cooperative societies at the village level, 176 district milk cooperatives (Milk Union) and 17 State Federations. The activities of the DCS include 1. Milk collection, testing for fat content and sale of cattle feed. 2. Provide micro-level inputs such as Artificial Insemination (AI) service and Veterinary First Aid (VFA) to the members animals. 3. The DCS also markets nutritionally balanced compounded cattle feed produced by the cattle feed plant owned and operated by the District Union as well as fodder seeds.

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-----------------------------------------------------------------------------------------------------------In general the Union carries out four important functions 1) Milk procurement 2) Milk processing and marketing 3) Providing technical inputs and extension services for enhancing milk production and productivity 4) Strengthening the milk cooperative movement The Federations are responsible for a) evolving and implementing policies on cooperative marketing of all member Unions liquid milk and milk products b) deciding the products-price mix c) managing centralized input services (artificial insemination, breeding) on behalf of the Union The Anand Model is essentially an economic organizational pattern, for small producers who join hands to benefit from an integrated approach in handling their produce. The system enables them to obtain the efficiencies and economies of a large-scale business through professional management, the freedom to decide their own business policies, adopt modern production and marketing techniques and provide those services that small producers individually can neither afford nor manage. The cooperatives under this model have progressively eliminated middlemen, bringing the producers in direct contact with consumers.

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-----------------------------------------------------------------------------------------------------------3. Current levels of backward linkages and forward linkages

Milk Producers

VETERNIARY FIRST

BALANCED CATTLE

FEED

AID

Primary milk producer societies BALANCED CATTLE FEED ANIMAL HEALTH COVER SERVICES

A.I.

Weighing grading and PAYMENT EVERY TEN PAYMENT MILK PRODUCTS

EXTENSION SERVICES, FODDER ETC.

CATTLELFEED

Transportation SPERM STATION

BALANCED

District cooperative milk producers union

Dairy plant

PROCESSING, PACKAGING & TRANSPORTATION

MARKETING AND DISTRIBUTION

Consumer

PAYMENT TWICE A DAY

A.I. SERVICES

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-----------------------------------------------------------------------------------------------------------6.2.6 SWOT analysis of dairy farms

Strengths Large cattle population: 186 Mn cattle and 97 million buffaloes 57% of the milk produced in country is buffalo milk which has higher fat and solid non fat content compared to cow milk

Opportunities With reduction in subsidies by EU and USA, India could become low cost supplier to the world dairy market India geographically is surrounded by milk deficit countries like Bangladesh, middle east, Africa etc Higher milk yield through better use of crop residue and by products Focus on animal health could result in minimizing economic loses due to diseases like FMD, rinder pest etc

Weakness Inability to feed the cattle throughout the year Lack of Quality dairy animal. Artificial inseminisation service for breeding better cattle has limited coverage, reaching an estimate of 10% of bovine population Limited marketing support to rural milk producers. Limited Poor investment infrastructure in setting for up or expansion of milk procurement network transporting, processing and distributing rurally produced milk to major consumer center. Mostly women are involved in milk business in rural areas. There is a need for training in modern cattle management to maximize returns Availability of timely credit for purchasing of feed/fodder, health care and other inputs

Threats High cost of credit adversely decreases the viability of project

6.3 Milk Processing

About 37-43% of milk produced in India is processed. Milk-processing capacity has grown at a CAGR of 4% over the last six years. There are 791 dairy processing plant having processing capacity of 98.2 million tonnes per day. The private sector accounts for 63% of these processing plants and about 46% of the processing capacity. Most of the new capacities are being set up by the private sector. The milk procurement has

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-----------------------------------------------------------------------------------------------------------been growing between 7-9%. The dairy cooperatives are currently selling 80% of their procurement as liquid milk. However, the gap between milk procured and liquid milk marketed has been growing significantly. Exhibit 6.7 Processing capacity in India
Year No 2005 2006 232 245 Cooperative Capacity 32.90 35.92 No 472 495 Private Capacity 39.54 44.68 No 47 51 Others Capacity 11.70 176.28 No 751 791 Total Capacity 84.14 98.23

Source: Dairy India year book 2007

The organised sector (large-scale dairy plants) processes about 13 million tonnes and the unorganised sector (halwais 5 and vendors) processes about 22 million tonnes per annum. In the organised sector, there are 791 dairy plants in the cooperative, private and government sectors registered with the Government of India and the state governments. The capacity utilisation in both the private and the cooperative sector is low (65-70%) and is increasing gradually. The low capacity utilisation is owing to the huge difference between the milk production in flush season (winter) and the lean season (summer).
Exhibit 6.8 Milk Processing in India in the Organised and Unorganised Sectors by Volume in 2006-07
Degree of Processing Raw Retention by rural consumers / sale to rural non-producers Sold as loose milk in urban areas Processed (organised) Processed (unorganised) Total* Source: Rabobank Analysis Total milk production based on Ministry of Agriculture Data 100 100 Packed liquid milk Value-added milk products Value-added milk products 15-17 10-12 5-7 22-24 15-17 10-12 5-7 22-24 Type Volume (million tonnes) 43-45 43-45 Share (%)

Halwais are a mom and pop kind of shops for milk and milk based products. Vendors are milkmen who have milch cattle and deliver milk to home.

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-----------------------------------------------------------------------------------------------------------6.3.1 Milk & Milk products- consumption and per capita expenditure Milk and milk products include liquid milk, condensed milk, baby food, ghee, butter, ice cream and other milk products. Demand for these products grew by 7.6% annually from 1996 to 2002. The consumption of milk and milk-based products is growing at a faster rate than production. Consumer demand for milk and milk products is estimated at INR 1169 billion (USD 28.5 billion).
Exhibit 6.9 Consumption of Milk and Milk Products (INR billion)
80000 70000 60000 50000 40000 30000 20000 10000 0 1996 1997 1998 1999 2000 2001 2002

Source: NSSO Data and Rabobank Analysis

The value of liquid milk being consumed in urban areas is about INR 280 billion (USD 6.8 billion) per annum and is growing at 8.4% annually. In rural areas, this value is about INR 400 billion (USD 9.7 billion) and is growing at 7%. The growth in market size is being driven primarily by an increase in per capita expenditure (which is higher than the economic growth).
Exhibit 6.10 Share of Organised and Traditional (unorganised) Market (INR billion) by Value in Year 2004-05
Item Packaged liquid milk Ethnic sweets Curd and curd products Cheese Ice creams Butter Organised 98 62.5 4 10.6 5.9 Unorganised 455 (Khoa 7 -based 375, chhanna 8 -based 80) 160 21 (Paneer) 9 9.4 60

At 1993-94 prices Khoa (khoya) is a heat desiccated milk product produced by boiling milk (preferably buffalo milk) in a large, open, bowl shaped metal pan. 8 Chhanna is an acid coagulated milk product used as an intermediate in wide variety of milk based Bengali sweets. 9 Paneer is a heat/acid coagulated milk product which is similar to unripened cottage cheese.
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-----------------------------------------------------------------------------------------------------------Item Ghee Milk powder Total Source: Rabobank Analysis Organised 35 38 254 Unorganised 210 915

6.3.2 Key Issues in Processing The key issues in processing include the lack of milk availability in the lean season, limited diversity in the offerings of players, regional demand/supply imbalances, the lack of scale and a lack of commercialisation in ethnic products. A) Lack of availability of milk in the lean season & limited flexibility in altering productmix Despite potential for processing, the capacity utilization of dairy plants is about 50%. The reasons for low capacity utilization are the lack of availability of milk, particularly in the lean season and lack of diversity in the product mix of companies. Robust growth in consumption of milk and milk products (discussed in the next section) has resulted in the entry of private sector players. Since procurement of milk is concentrated in certain milk-surplus clusters, it has contributed to increase in milk procurement prices as below:
Exhibit 6.11 Milk Procurement Prices in INR per Kg in Western Uttar Pradesh 10
Cow Year 1998 1999 2000 2001 2002 2003 Flush Season 6.4 7 7.5 8 7.5 8.5 Lean Season 10 11 11.75 12 11.75 12.5 Flush Season 9.4 11.3 11.5 11.6 11.7 12.3 Buffalo Lean Season 13 13.5 13.75 13.8 13.8 14.5

Source: Industry Estimates

B) Regional demand-supply imbalances Further, there are regional imbalances in production, capacity growth and consumption. For e.g. Rajasthan with 8% share in production and 11% share in consumption of milk products has 4% share in processing capacity.

10

State in North India

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-----------------------------------------------------------------------------------------------------------Exhibit 6.12 Growth per annum in Production, Processing and Consumption of Milk and Milk Products
Production Growth States Andhra Pradesh Bihar Gujarat Haryana Karnataka Kerala Madhya Pradesh Maharashtra Punjab Rajasthan Tamil Nadu Uttar Pradesh West Bengal Others India 5% 6% 4% 3% 2% 12% 4% 0% 4% 9% 8% 8% 19% 5% 18% 2% 19% 9% 5% 3% 7% 14% 4% 11% 7% 10% 8% 4% 5% 4% 18% 7% 4% 4% 3% 7% 9% 6% 11% 7% 5% 5% 7% 2% 3% 4% 7% 8% 6% 5% 7% 6% 6% 3% 6% 3% 4% 4% 8% 5% 6% 1% 9% 7% 5% 1% 1% 4% 1% 2% 5% 9% 5% 7% 9% 6% 4% 3% 6% 11% 9% 5% 8% 5% Production Share (1991-92 to 2001-02) Capacity Share Processing Capacity Growth (1996-2002) Consumption Share Consumption Growth Growth (1996-2002)

Source: Department of Animal Husbandry, Ministry of Agriculture; NSSO

Bulk of new capacity in the period 1996-2002, has been established in the Northern states, Maharashtra and Tamil Nadu. Capacity expansion is expected to continue, driven by increased consumption of processed milk products. This will create competition for milk in key procurement belts of North India (Western UP, Punjab, and Haryana), Rajasthan, Maharashtra, Tamil Nadu, Andhra Pradesh and North Karnataka. It is critical to match the increase in capacity with the increase in supply of milk supported by procurement infrastructure. C) Lack of scale of processing The largest dairy player in India is Gujarat Cooperative Milk Marketing Federation Ltd. (GCMMF) with an annual turnover of approximately USD 0.5 bn (Financial Year 200203). The largest international dairy company is Nestle with annual turnover of USD 18 bn (Year 2003, turnover from the dairy business).

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-----------------------------------------------------------------------------------------------------------Exhibit 6.13 Annual turnover of Indias leading dairy companies (INR bn)
S. No. 1 2 3 4 5 6 7 8 9 10 Company Gujarat (GCMMF) Nestl Mother Dairy Hatsun Agro Dynamix Britannia Heritage Chitale Dairy Metro Creamline Dairy Dairy sales 22.4 8.4 7.4 3.1 3.0 2.6 1.8 1.5 1.2 1.15 Ownership Cooperative Multinational Cooperative Public Private Private Public Private Public Private

Source: Company reports

The average milk processing capacity of Indias leading dairy cooperatives is in the range of 0.1 to 0.35 million litres per day.
Exhibit 6.14 Capacities of major dairy plants in India
Company Daily sales INR mn (US Bn) Gujarat (GCMMF ) Nestle (dairy business) Mother Dairy (dairy business) Hatson Agro Heritage 5500 (128) 1.3 2920 (68) 1.3 Sterling Agro Dynamix (Dairy business) Britannia 1500 (35) 1000 0.50 Outsource Contract manufacturing National Milkman Private Private 5500 (128) 1.3 2.1 11000 (256) 37000 (860) 14000 (326) 1.7 Nestle, National Delhi; Haryana, Uttar Pradesh, Maharashtra, Andhra Pradesh Tamil Nadu, Karnataka, Kerala, Goa AP, Tamil Nadu, Karnataka, Kerala, Maharashtra North India, North East India Nova Private Heritage Public Mother Dairy, Extensions Arokya, Komatha, Santosa,Delight Arun Public Cooperative Extensions Multinational 6.6 National Capacity (million litres per day) Amul, Extensions Cooperative Key markets Brands Ownership

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-----------------------------------------------------------------------------------------------------------Company Daily sales INR mn (US Bn) (23) Vishaka Dairy Cream line Dairy Modern dairy 2400 (56) 2200 (51) 1800 (42) 1.0 0.40 0.03 Coastal districts of AP and Hyderabad Tamil Nadu, AP, Karnataka Contract manufacturer Shweta Private Jersey Private Vishakha Private Capacity (million litres per day) Key markets Brands Ownership

Source: Rabobank analysis

Lack of scale as mentioned earlier, is a significant reason for the inability to invest in procurement infrastructure, quality control, and controlled temperature transportation on the one hand, and market development on the other. D) Limited commercialisation in Indian ethnic dairy products India has huge potential in ethnic products, which has not been realized. Of the total milk produced in India, 46 % is used as liquid milk, 4 % for processing western dairy products and as much as 50% for processing into traditional dairy products. The market sizes of various ethnic products are tabulated below:
Exhibit 6.15 Market Size of Milk Products in year 2004-05
Organised (INR Bn) Packaged liquid milk Ethnic sweets Curd and curd products Cheese Ice Cream Butter Ghee Milk Powder Total Source: Rabobank analysis 98 62.5 4 10.6 5.9 35 38 254 Organized (USD Bn) 2.3 1.5 0.1 0.2 0.1 0.8 0.8 5.8 Unorganized (INR Bn) 455 160 21 (Paneer) 9.4 60 210 915 10.6 3.7 0.5 0.2 1.3 4.9 21.2 Unorganized (USD BN)

Gross margins on ethnic products, excluding cost of marketing and distribution, for the products listed above, range from 12% to 38%. Despite the attractive inherent profitability, manufacturing and marketing of ethnic products has largely been the
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-----------------------------------------------------------------------------------------------------------domain of unorganized sector (halwaiis), which offer short shelf life products. The large-scale commercialization has not been possible due to lack of suitable equipments for large scale production of these products and also due to lack of low cost packaging technology which can enhance the shelf life of ethnic products. E) Lack of packing technology Milk and milk products face risk of limited self life. The perishable nature of the product makes it difficult to transport it to distant places. Latest packing technology can help in retaining the nutritive value of packaged products and extend self life of these products and can reach higher consumer base. F) Inefficient distribution infrastructure network The present distribution network has its limitation of reach and capacity. Lack of transport structure, cold chain, refrigerated vehicles and refrigerators at retail end has restricted the reach of dairy products to small and far off places.

6.4 Marketing and Exports

The following graph shows the key surplus and deficit regions of the world in terms of self sufficiency in milk and milk products
Exhibit 6.16
350% 300% 250% 200% 150% 100% 50% 0% Oceana (Australia + New Zealand) Western Europe South Asia India CIS South America Central America Africa South East Asia Middle East

Level of Sufficiency in Milk

Source: Rabobank International

Exhibit 6.17 Farm gate prices of milk in various countries of the world
Country Ukraine / Belarus Zimbabwe Share of Production 3% 1% Farm Gate Prices /100 Kg (USD) <10 11

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-----------------------------------------------------------------------------------------------------------Country Poland, Argentina, Latvia Australia, New Zealand, South Africa, Estonia India Czech Republic, Hungary EU, U.S., Croatia Japan Source: Rabobank International 15% 1% 35% 1% 19-23 19-23 38 60 Share of Production 4% 5% Farm Gate Prices /100 Kg (USD) 13-14 16-17

India has locational advantage in serving to the milk deficit areas in neighbouring country viz. Bangladesh (40%), Indonesia (40%), Malaysia (95%), Philippines (97%), South Korea (97%), Sri Lanka (65%), and Thailand (79%). (Figures in bracket indicate % share of imported milk). Also, the demand for milk products in these regions is expected to be strong. However, India is not able to capitalize on these advantages due to following reasons Low quality and hygiene standards Lack of experience in marketing products in international markets Significant growth in milk consumption in domestic market leading to limited surplus for exports Currently there is a ban on exports of skim milk powder from India. The total exports of skim milk powder from India grew from 4185 Mn MT tonnes in 2003-04 to 50510 Mn tonnes in 2005-06 at a CAGR of 247% for two years.
Exhibit 6.18 Export of skimmed milk powder
70,000 60,000 M illion tonnes 50,000 40,000 30,000 20,000 10,000 0 2003-04 2004-05 2005-06 2006-07* 4,185 28,200 50,150 65,000

Source: Rabobank & industry estimates * Expected export if export ban was not in place

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-----------------------------------------------------------------------------------------------------------6.4.1 Indian Market for various milk products Cheese: Cheese is mainly consumed in the form of processed cheese, mozzarella cheese and cheddar cheese. Cheese being a western product is mostly manufactured by organized players who have the technical know. The estimated market size of cheese is INR 4-5 bn (USD 115 Mn) in value terms and approximately 20,000 tonnes in volume terms. The market for cheese is growing at the rate of 10-12% per annum. Around 70-75% of the cheese consumed in India is in the form of processed cheese. The triggers for double digit growth rate for this product is food service, restaurants and fast food outlets that are coming up in India. The key players in Cheese market is Amul which holds around 75% of the market size. Other players in India include Britannia, Bongrain (Brand name Lebon), and Fromageries Bel (Brand name Laughing Cow). Culture used for cheese making is usually imported. Butter: Butter is quite similar to Makhan which is its traditional counter part (The difference being than Makhan has no added salt to it). Butter is mainly used in enhancing taste of some food products prepared at home. The market size of butter is INR 5.9 bn (USD 133 Mn) in value terms and 45,000-50,000 tonnes in volume terms. The market growth for butter is estimated to be 8-10% per annum. Key players in India include Amul and Britannia. Amul is the market leader with 75-80% market share. Dahi and Yoghurt: Dahi is the Indian counter part for Yoghurt. Dahi is consumed on a daily basis in Indian house hold. The market size estimated for Dahi is INR 160 Bn (USD 3.7 bn) in value terms and around 5.2 million tonnes in volume terms. The market is mostly unorganized with organized players handling only 1% of the share. The demand for Dahi is increasing at the rate of 20% per annum. Innovation is the key to this market. Products like Yoghurt are manufactured mostly by organized players. The market for such products is very niche. Amul holds the major share in Dahi market (organized). Nestle is another player manufacturing Dahi and Yoghurt. Ice Cream: Due to the Indian climate being tropical, there is natural tendency for consumption of ice cream particularly during summers. The per capita consumption of ice cream is still low in India (106 ml per annum) compared to USA (23 litres per annum). The organized players handle around 53% of the total market while the rest is handled by unorganized players. The ice cream market is value at INR 20 bn

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-----------------------------------------------------------------------------------------------------------(USD 455 Mn). Amul is the market leader in ice cream with 37% of market share followed by Vadilal and HLL (Kwality Walls) at 7-8% each. Other players manufacturing ice cream include Mother dairy and Hatsun diary. There are many small players manufacturing ice cream in India to cater to the local market needs. Product innovation and pricing holds the key to this market. Ice cream is mostly consumed in Delhi, Mumbai and Gujarat. Paneer: The market size for paneer is around 15,500 tonnes. Most of the market is being handled by the unorganized sector (halwais). Paneer is mainly used in preparation of vegetable based dishes. It can also be consumed as a snack since it can withstand high frying temperature. The market size for paneer is growing at the rate of 6-7% per annum. Amul, Mother dairy and Verka are the organized players manufacturing paneer. It is consumed mostly in North India. Khoya: Around 6 million tonnes or 7% of the total milk production of India is converted to khoya. Khoya is mainly used for making sweets viz. Gulabjamun, Peda, Burfi, Kalakand, and Khurchan. This product is a raw material used for making sweets. Khoya is mostly made by halwais and it is hardly sold in its indigenous form by the organized sector (organized sector manufactures khoya for making sweets). The demand for khoya is seasonal and most of the demand happens during the festival time when Indian households prepare sweets at home. Note Dahi is made from culture containing St. cremoris. Generally Dahi is made at home by adding previous days Dahi as a inoculums in the milk. Yogurt is made from two strains of microorganism St. thermophilus and Lb.Bulgaricus. Gulabjamun, Kalakand are khoa based sweets prepared by using khoa, maida (flour) and sugar. Peda, Burfi and Kurchan are prepared by using khoa and sugar.
Exhibit 6.18 Retail prices for various milk products in India
Product Ice Cream (Plain Vanilla) Butter Cheese cube (Processed) Cheese slice (Processed) End consumer price USD/Kg 1.7 per litre 3.9 6.09 6.7

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-----------------------------------------------------------------------------------------------------------Product Cheese spread Dahi Yoghurt Flavored milk UHT Paneer Khoya Source : Rabobank research End consumer price USD/Kg 4.26 0.58 0.73 1.22 per litre 0.7 115 160

6.4.2 Supply chain for various dairy products The following exhibits summarize the supply chain for various types of products
Exhibit 6.19 (A) Ambient product supply chain/Chilled product supply chain

Dairy

Depot managed by C&F Agents

Wholesaler/D ealer/ Distributor

Retailer

Customer

Exhibit 6.19 (B) Frozen product supply chain

Dairy

Depot managed by dairy (product not unloaded)

Distributor

Retailer

Customer

There are four tier of supply chain in Amul based on the type of product viz. Ambient product supply chain: for products like UHT (milk, lassi etc.), SMP, and Ghee. These are the products which typically dont require refrigeration. Frozen product supply chain: for products which require high level of refrigeration for transportation viz. Ice-cream, paneer and Mozzarella Cheese.

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----------------------------------------------------------------------------------------------------------- Chilled product supply chain: for products like Butter, cheese which require refrigeration but dont require freezing temperatures viz. Butter, Cheese (Processed and Cheddar variety) Fresh product supply chain: for products which dont require refrigeration and are transported in insulated vans viz. Liquid milk, lassi etc. (low shelf life products) The temperature of transportation varies for all the four types of supply chain e.g. products like UHT milk, Skim milk powder and Ghee are transported in ambient temperature, fresh products are transported in insulated van and chilled products are transported in refrigerated vans (temperature of around 50 C) while frozen products are transported in refrigerated vans. India is a huge market for various value added milk products. Not many organized players have ventured into manufacture of traditional Indian dairy products. There is a huge potential for organized players to enter into Dahi, paneer and Khoya market. The foremost reason deterring the organized players for these products is preparing these products on a continuous scale. Equipments for manufacturing these products in a continuous scale is lacking in India.

6.4.3 SWOT analysis of the demand side

Strengths Increasing population and income. Population increasing at the rate of 1.6% coupled with raising income increases the potential consumption base Reasonable margins Variety of product mix. Milk offers variety of products. Dairy enterprise can keep on adding to these products Abundant raw material availability. There is vast scope to procure more milk in organized sector. Availability of professionally trained managers and technicians Availability of new technologies with national level institutions Opportunities Value addition in following product areas: Infant foods, geriatric foods, milk product focusing on low calorie, low fat, cholesterol free, sugar free etc. Milk protein through casein and dietary grade of protein for domestic and export market Traditional milk based products like, Srikhand, panner, Khoa, dairy sweets etc Cultured products like dahi, yoghurt and cheese

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-----------------------------------------------------------------------------------------------------------Weakness Perishable nature of milk due to which within hours after milking, milk has to be processed. Mechanical chilling, Pasteurisation and UTH processing overcome this weakness partially. Low productivity of milch animals. Milk productivity of milch animal continuous to one of the lowest in world. Fragmented procurement Inadequate infrastructure for distribution of milk and milk products. Lack of cold chain, refrigerated retail end. vehicles and refrigerators at dairy farm and inadequate transport structure resulting in inefficient Threats Wide presence of the unorganized sector Natural calamity such as drought, floods etc Import tariff revision Export subsidies increase by EU and USA

6.5 Legal and Taxation Issues

There are no excise duties on any of the dairy products manufactured in India. To promote Dairy sector, the Govt. of India has removed excise duty on Ice cream and condensed milk from March 1, 2006. VAT applicable for Dairy products is 4% for Skimmed milk powder and 12.5% for other Dairy Products (VAT is value added tax for sale within India)
Exhibit 6.20 Bound Rates for import of Milk & Milk Products
Products Fresh milk and cheese with fat content not exceeding 6% Fresh milk and cheese with fat content exceeding 6% Skim milk powder and Whole milk Powder Bound Rates in % 100 40 15% up to 10,000 MT/Year and 60% beyond Butter, Dairy Spreads, Butter oil and Ghee Cheese including Powdered/grated and processed cheese Yoghurt and others including Butter milk Whey and Whey concentrates/Powders Other whey products Source: Industry sources 40 40 150 40 150 40 30 30 30 30 Current Rates in % 30 30 60

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-----------------------------------------------------------------------------------------------------------The applicable duty rates are revised by the Government of India from time to time. The state-level taxes on manufactured products create a non-level playing field vis-avis the unorganized sector, which can price its products lower as there is no outflow on account of such levies. Further, there is high level of taxation on dairy equipment and machinery (16% central excise + 15.3% sales tax +4% octroi), with the exception of a few products which are exempt. Also, the excise duty on polyethylene film, aseptic packaging machines, milk vending machines, pouch filling machines, used in packing and distribution increases the cost of packed and pasteurized milk.

6.6 Outlook
Inability to feed cattle adequately throughout the year remains the most widespread technical constraint to higher milk yield along with quality supply of dairy animals. Artificial Insemination service for breeding better cattle has limited coverage, barely reaching 10% of bovines. Improvements in raw milk by its chilling and refrigerated transport are vital for making quality products. There are opportunities of exporting milk and value added milk products to neighbouring countries because of competitive farm gate prices and milk deficient neighbours. Setting up large dairy farms for milk production and improvement in feed inputs to the cattle would further boost milk production. Use of biotechnology and data base management is the key for managing large dairy farms.

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------------------------------------------------------------------------------------------------------------

Chapter 7 Grain based foods

7.1 Background
India is the second largest producer of rice and wheat in the world. Total food grain production has been little over 200 million tonnes in the last five years. In fact, it stood at 210 million tonnes in 2005-06.
Exhibit 7.1 Indias production of food grains in 2005-06
2005-06 Production in India (Mn tonnes) Total Rice Wheat Maize Jowar (Sorghum) Bajra (Pearl Millet) 210.01 89.88 71.54 14.89 7.65 8.31 % share of world production 11 22 12 2 14 36 Indias rank in world production 3 2 2 6 3 1

Source Ministry of Agriculture Govt. of India, FAO

While rice and wheat together constitute the staple diet of almost the entire population in the country, over 50% of maize is utilized for manufacture of poultry feed. The balance is either dry milled and consumed as staple food, or wet milled for producing starch and starch-based derivatives and by-products.

7.2 Wheat
7.2.1 Wheat production Most of the wheat produced in India is bread wheat which is soft or medium hard, with medium protein content. This variety of wheat is mainly grown in the Northern Indian states of Punjab, Haryana, Uttar Pradesh and Rajasthan. Durum or hard-wheat which is typically hard, with high protein and high gluten strength, is grown in Central and Western India. Though wheat acreage has been gradually increasing over the past decade, yields have stagnated at around 2.6 tonnes /ha (2005-06). This year (2006-07), wheat production

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-----------------------------------------------------------------------------------------------------------is estimated at 72.5 million MT cultivated on an area of 26.64 million hectares, as compared to the previous years production of 69.35 million MT.
Exhibit 7.2 Area, Production and Productivity of Wheat
90 2850 2800 2750 2650 2600 2550 2500 2450 2400 2350 2300
1994- 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 200595 96 97 98 99 00 01 02 03 04 05 06
Area ( million ha) Production ( Million Tonnes) Productivity ( kg/ha)

Million Hectares/ Tonnes

80 70 60 50 40 30 20 10 0

Source: Ministry of Agriculture, Govt. of India

The overall supply chain of wheat is represented below

Exhibit 7.3 Wheat supply chain in India
PRODUCER Warehouses Consumer (15%) Private Sector Traders (8%) Public Procurement Agencies (62-67%) Processed Products Primary Wholesalers (7.5%)

Flour Mills (5%)

Productivity (kg/ha)
Secondary Wholesalers Processing Mills

2700

Processed Products

Fair Price Shops

Retailer Retailer

Processed Products

Retailer

CONSUMER

Source : Industry, Rabobank research

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-----------------------------------------------------------------------------------------------------------7.2.2. Processing Though the potential for value addition is high in wheat, most of the produce is subjected to primary processing. More than 65% of wheat is converted into Atta (wholegrain flour) by unorganized players (through small milling units called chakkis) as well as by organized roller flour mills. Atta is in-turn consumed as chapatis or rotis. (Unleavened flat bread).
Exhibit 7.4 Wheat milling
Average capacity Wheat milled (Million tonnes) Home grinders Chakkis Roller flour Mills Source: Industry Estimates <1 42.5 12.5 N.A. 400,000 900 No of units Utilization (%) N.A. 71% 45%

Roller flour milling The Roller Flour Milling Industry has undergone a gradual shift towards greater processing and value added products. Maida, in addition to being used by the bakery industry for biscuits and parota 11 stalls (unorganized) is now being used in the preparation of value-added products such as vermicelli, macaroni, noodles and pastas. Another emerging trend is fortification of flour with iron, folic acid etc., to improve the nutritional quality of diets.
Exhibit 7.5 : Roller flour mills Growth in numbers and capacity (1990-2001)
Capacity Year 1994 1995 1996 1997 1998 1999 2000 2001* (mn MT) 17.1 19 19.2 19.2 19.2 19.4 19.4 19.5 Estimated throughput (mn MT) 9.4 10 12 12.2 12.5 12.3 12.3 12.5 Number of Roller Flour Mills 750 800 812 812 820 820 820 820

Source: Industry estimates (MOFPI) * - Info not available beyond 2001

11

flatbread usually made with whole-wheat flour, pan fried and often stuffed with vegetables, especially boiled potatoes, radish or cauliflower and/or paneer (Indian cheese).

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-----------------------------------------------------------------------------------------------------------Capacity utilization has been low due to several reasons, including presence of a large unorganized milling sector, excess build-up of capacity, low priority for movement of wheat from wheat producing states to other states and the government levies and taxes on processed wheat-based products, which have translated into low operating margins for industry players. The Indian roller flour mills are operationally far inferior to mills in developed countries in terms of scale and efficiency norms. The typical size of a roller flour mill in India is 70 tonnes per day (tpd) vs 1000 tpd in North America. The high energy consumption of some mills, due to obsolescence is also adversely affecting the efficiency of milling. 7.2.3 Government Policy A) Minimum Support Price The Government announces Minimum Support Prices (MSP) for 24 major crops including several types of grains such as Paddy, Wheat, Jowar (Sorghum), Bajra/Ragi (Pearl Millet) and Maize .
Exhibit 7.6 - MSP of Wheat over years
MSP of Wheat Year 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 (INR/ quintal) 510 550 580 610 620 630** 630 630 640 750+100 (bonus) MSP of Wheat (USD/ quintal) 11.86 12.79 13.48 14.08 14.41 14.65 14.65 14.65 14.88 19.76

Source: Ministry of Agriculture, Govt. of India Note: *including special Drought Relief (SDR) of INR 20; **including SDR of INR 5

B) Grain Procurement / Public Distribution Scheme The government, as per the Budget for 2004-05 expanded the highly subsidized grain distribution program for the poorest-of-the-poor (Antyodaya Anna Yojana) to cover an additional 5 million families. This scheme resulted in a higher wheat off take from government stocks and support higher consumption.

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-----------------------------------------------------------------------------------------------------------The selling price of wheat by the government under various Public Distribution Schemes (PDS) are: INR 6100/tonne for the Above Poverty Line (APL) consumers, INR 4150/tonne for the Below Poverty Line (BPL) consumers, and INR 2,000/tonne for the "poorest-of-the poor" consumers. The Central Government extends price support to wheat through the Food Corporation of India and the State Agencies. All the food grains conforming to the prescribed specifications i.e. Fair Average Quality norms offered for sale at specified centres are bought by the public procurement agencies. The producers have the option to sell their produce to FCI/State Agencies at support prices or in the open market as is advantageous to them. The procurement policy is open ended and no targets, as such, are fixed for the procurement of food grains. The current mechanism of PDS, together with the huge differential between the selling prices of PDS grain in the open market and MSP, have translated into a burgeoning parallel market for grains, wherein substantial volumes targeted for PDS, get diverted via middlemen to chakkis/ flour mills. Wheat stocks declined to 2 million tonnes in April 2006 against a minimum buffer stock norm of 4 million tonnes. Poor procurement of wheat further reduced the actual stocks relative to buffer norms. To make up for the shortfall of wheat procurement in the rabi marketing season (RMS) 2006-07, Government decided to import 5.5 million tonnes of wheat through the State Trading Corporation (STC) for the central pool at an average weighted price of USD 205.31 per tonne, of which 4.5 million tonnes arrived by end of January 2007. In addition, one million tonnes of wheat import on account of private traders was also contracted. C) Grain Storage Most storage godowns with Food Corporation of India (FCI) are small-scale, low-quality structures. Grains are also stored in the open (known as covered and plinth storageCAP) leading to heavy storage-losses. A World Bank report (June 2000) states that half of FCI's grain stock is at least two years old, 30 per cent between two and four years old, and some grain stocks are as old as 16 years. Issues related to grain storage:

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-----------------------------------------------------------------------------------------------------------Sub optimal Post-Harvest handling and storage There is negligible on-farm cleaning with no permanent storage structures available at the field level. The grain is handled manually. The addition of impurities and moisture levels translate into higher losses along the chain. The grading is done visually with negligible focus on identity preservation. The storage (typically in the open) is sub optimal.

Mandi related issues Under the Agriculture Produce Marketing Committee Act (APMC) Acts of various states, it is mandatory for processors to procure grains only from a network of state-controlled regulated wholesale markets (mandis). This is an inefficient process, as there is not only redundant transportation, loading and unloading costs, but also incremental transaction costs through intermediaries who add negligible value to the produce. Further, there is a marketing fee levy associated with mandi transactions which ranges from 0.5 to 2.5% across states. Since most mandis do not have the infrastructure to effect appropriate grading and sorting of produce, the processor is forced to procure grain which is often a mix of different varieties and qualities. High MSP apart, interest costs on storage, highly centralized system of procurement and distribution, and operational inefficiencies have been adversely affecting the economic cost of foodgrains to FCI. 7.2.4 Wheat based processed foods Bread, Biscuits and Grain Based snacks are the key grain based processed food sectors in India.
Exhibit 7.7: Market size for various segment of grain based foods
Value (USD Billion) Bread Biscuits Grain based snacks Branded Atta Pasta products TOTAL Source: Industry Estimates 0.90 1.6 0.67 0.31 0.2 3.68 Value (INR Billion) 2005-06 38.9 68.6 29.0 13.5 8.4 158.4 Volume (Million tonnes) 2005-06 3.75 1.95 0.29 0.90 0.14 7.03

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-----------------------------------------------------------------------------------------------------------Atta (Whole meal flour) According to estimates, more than 65% of total wheat produced in the country is utilized for atta production, which in turn is used for the preparation of Chapatis. As per industry sources, the branded atta market stands at about 0.9 million tonnes. Branded atta is a relatively new segment, developed on the back of the opportunity to provide consumers a more hygienic product of consistent quality, as compared to chakki atta. The branded segment is currently growing at 7-9 percent, which is lower than initial expectations of players who have entered this segment. The key reasons for this are the increase in the price level of branded atta as compared to chakki atta, due to taxes and distribution margins Lack of well-differentiated value proposition for consumers.

Diversion of PDS grain via the grey market, also translates into lower cost of raw material for small, unorganized players, who are therefore able to price their product more competitively. Moreover, the players in the unorganized sector do not pay sales tax and are able to offer the product at a lower price to the consumer.
Exhibit. 7.8 - Branded Atta - Regionwise share of total atta consumption
19%

47% 21% 13% North

Source Rabobank research

East

West

South

North The wheat is sourced mainly from Punjab and UP. Most companies are incurring losses in North India, as it is difficult to justify a premium over chakki atta. East The market is mainly serviced by mills in Eastern UP South and West - Profitability is higher (INR 1.5 per kg) due to less competition from chakkis (as is the case in North India). Although raw material cost of wheat is higher, it is offset by higher MRP.

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-----------------------------------------------------------------------------------------------------------Exhibit. 7.9 Branded Atta Cost Card (INR / Kg)

North MRP of 1 kg Branded Atta Retailer's Margin Distributor's Margin Sales Tax (4%) Gross Realisation per kg Discount / Scheme Discount / Scheme Raw Material Packing Material Mfg Variable Cost Transportation End-to-End Contribution (%on NR) Source: Rabobank research % Net Realisation (INR) per kg 12.00 0.89 0.53 0.41 10.18 1.53 15.00% 8.65 8.00 0.75 0.75 0.25 -1.10 -13% East 15.00 1.11 0.66 0.51 12.72 1.53 12.00% 11.19 8.00 0.75 0.75 1.00 0.69 6% West 20.00 1.48 0.88 0.68 16.96 2.54 15.00% 14.41 10.00 0.75 0.75 1.00 1.91 13% South 20.00 1.48 0.88 0.68 16.96 2.04 12.00% 14.92 10.00 0.75 0.75 2.00 1.42 10%

Bakery Products Bakery products constitute the largest segment of grain-based processed foods. The industry is characterized by the presence of a large number of unorganized players, exceeding 50,000. There are only about 15 players, who market branded, packed bakery products. The annual production of bakery products which includes bread, biscuits, pastries, cakes, buns, rusk etc is estimated to be 5 million tonnes in 2004-05 with estimated value of INR 110 billion. The two major bakery industries, viz., bread and biscuit account for about 82% of the total bakery products. The organized sector has a market share of 45 per cent and the balance 55 per cent is with the unorganized sector in the baked products. A. Bread: Total bread production in the country is estimated to be 3.75 Million tonnes annually. As per industry estimates, in the last 5 years, the bread industry in India has been growing at about 6%. The organized segment has grown faster at 8 %. In 1977, the Government of India had reserved the bread industry for small scale industries (SSI). The then existing two large units viz., Britannia Industries Limited and Modern Food Industries Ltd. were however allowed to continue on the basis of their respective existing installed capacity. Besides these two players, there are 25 medium-scale and 1800 small-scale manufacturers, and together, account for 45 % of production. The

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-----------------------------------------------------------------------------------------------------------unorganised sector is estimated to have as many as 75,000 bread bakers located in residential areas in towns and cities. According to industry sources, South India consumes 32 per cent of the bread produced in the country, followed by the North at 27 per cent, the West at 23 per cent and the East consumes the remainder. From being a low priced commodity, bread has gradually developed into a branded product largely because of the product positioning platforms created by the two large players in the industry. The bread industry is expected to register rapid growth driven by consumers need for convenient food options for breakfast as well as increased propensity to snack. While consumption of milk bread continues to dominate, segments such as brown bread and fruit bread has been growing rapidly in the recent past. Growth of the food service industry is also expected to catapult the growth of bread and bread-based foods such as burgers, sandwiches and pizzas, the key food offerings of most food outlets.
Exhibit 7.10 Bread - Product differentiation

3% 10%

2%

85%
Milk Bread
Source: Industry Estimates

Brown Bread

Fruit Bread

Other speciality Bread

Most bakeries in India produce bread or biscuits of a single variety; such as white pan bread and sweet glucose biscuits. A variety of products can be made by changing the shape, recipe, and by incorporating other ingredients or processing conditions. In countries such as West Germany as many as 200 varieties of breads are made, both in large and small scale bakeries. differentiated products. Based on the supply chain analysis of Breads, the following opportunities have been identified which leverage on the expertise of Australian companies. The use of technology has made it possible to offer

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-----------------------------------------------------------------------------------------------------------Business possibilities with SMEs those who have small local brands Tie ups for product development - different varieties of Breads Expanding range of existing breakfast cereals (e.g. Nutrition bars.) Technology tie up for instant mixes - breads, cakes, pies etc.

Bread Franchising The bread industry with estimated production of 2.7 million tonnes in 2004-05 and growing at 7.5 % is represented both by the organized and unorganized sectors with respective shares of 55 per cent and 45 per cent. The large organized sector players who are prominent in the high- and medium-price segments include Britannia, Modern Industries Ltd. Brands like Modem and Britannia are major players in the bread market and together they account for 90% of the organized bread market. Local manufacturers with numerous local brands cater to the populous segment and contribute considerably to the bread segment. Low margins and high level of fragmentation are the main features in the bakery industry. Volumes, brand loyalty and strong distribution networks are the main drivers of growth. Organized bread industry is now facing problems of low margins due to escalating prices of major raw materials, particularly wheat flour, vegetable oil, sugar and milk. In the current era of liberalisation, the development of brand equity through the franchising route is gaining ground. The best example is the way by which the Chennai based Hot Breads is expanding nationally and internationally. Premium Niche players in India in breads are Britannia, Modern Industries Ltd, Hot Breads, Elite Foods, Indian foods, Harvest Gold, Fast Foods Private Ltd. etc. B. Biscuits: The size of the biscuit industry is estimated to be around 1.95 million tonnes (valued at INR 68.6 Bn), of which the organized (branded/packed) segment is about 57% by volume, but 64% by value. The organised biscuit sector comprises two large scale units, about 50 medium scale and approximately 2500 Small Scale Industry (SSI) Units. The unorganized sector is estimated to have approximately 30,000 small and tiny bakeries across the country.

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-----------------------------------------------------------------------------------------------------------The biscuit industry, which was earlier reserved for the SSI sector, was dereserved in 1997-98. Post- dereservation the biscuit industry grew by 10-12% upto 1999-00. Subsequent to dereservation, many other SSI units have joined as franchisees of large biscuit manufacturers. The per capita consumption of biscuits in India is only 1.9 Kg, compared to 10 Kg in the USA, UK and West European countries and above 4.2 Kg in the South East Asian countries, i.e. Singapore, Hong Kong, Thailand, Indonesia etc. While product differentiation through convenient packaging, (smaller packs at affordable price points), aggressive promotion and distribution have been the key growth drivers of branded biscuits on the supply-side, growing income levels and increased consumer spending on high value food items have driven demand. Biscuits are still dominated by basic biscuit categories such as Glucose and Marie which aim to satisfy hunger'. Product innovation and variation to bring in differentiated products (such as Little Hearts, Pure magic and Good-day brands of Britannia and Hide and seek brand of Parle) has resulted in increased sales and superior price to manufacturers. There is further scope to segment the market through innovative value propositions in taste, need and image, such as snacking and indulgence.
Exhibit 7.11 Biscuits Product segments

8% 12% 44%

13%

10%
Glucose
Source: Industry Estimates

13%
Cream Cracker Milk Others

Marie

The major deterrent affecting the growth of the biscuit industry is taxation. Central Excise Duty on biscuits is 8%. There has been a sharp increase in sales with the lowering of Excise duty from 16% to 8% as seen in Exhibit 7.12. In addition to the Excise duty, there are various State Taxes such as Sales Tax, and other local levies Turnover Tax, Local Area Tax, Octroi, Purchase Tax, Mandi (Regulated market) Tax etc.

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-----------------------------------------------------------------------------------------------------------With the Union Budget (2007) announcing complete excise exemption for biscuits priced up to Rs 100 per kg (this essentially includes glucose biscuits), Parle, Britannia and ITC may well be looking at getting back to the 100 g pack size for INR 5. Biscuit Manufacturers Welfare Association (which comprises 39 members including Parle, Britannia and ITC), is of the opinion that excise benefits will be passed on to the consumer in the form of additional biscuits per pack. The excise exemption would translate to about INR 1.8 billion benefit to the industry and the association is suggesting 6% heavier pack sizes, while maintaining current price points. Glucose biscuits account for about 35% of the overall domestic biscuit market at INR 20 billion. Parle is the clear market leader with more than two-thirds market share with brand Parle-G, followed by Britannia with about 20% share through its brand Tiger. Over the last one year, key raw materials used in making glucose biscuits have seen considerable increase: wheat prices are up 20% whereas those of sugar and oil have also spurted by 15-20%. This severe cost pressure has resulted in industry margins on most biscuits halving over the last one year. Meanwhile, biscuit makers have been presenting a divided house over the last few weeks on the issue of passing on benefits of excise exemption on certain biscuits to the consumer. While Britannia, ITC and Parle may consider enlarging glucose pack sizes, smaller biscuit makers such as Priya Gold may have no intention of following suit and have instead asked for further excise concessions from the government. Due to cost pressures and inability to raise prices, growth of the biscuit industry as a whole has been tapering off. From growth rates of 15-18% till last fiscal, the industry is faced with only about 8 per cent growth this time around.
Exhibit 7.12 - Impact of Excise duty on Biscuit growth rates
Year 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 * Estimated Source - Federation of Biscuit Manufacturers Association of India Excise duty 8% 8% 16% 16% 16% 8% 8% Estimated Growth in Demand 11% 11% -3.5% 2.75% 3% 15% 18% *

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-----------------------------------------------------------------------------------------------------------By the year 2010, Britannia and Parle are likely to face greater competition from smaller regional players like Bisk Farm, Priya and Anmol in East India, Surya Gold in North India and CavinKare in South India. Moreover, both Britannia and Parle would almost certainly lose shares if ITC Foods is successful in its quest to account for 20% of biscuits sales by 2008. They may also be challenged by the expected entry of Haldiram into biscuits. Given that Haldiram already has an extensive distribution network in place in India, it could be an interesting competitor to watch out for over 2005-2010. In biscuits, few of the opportunities which have been identified, which leverage on the expertise of Australian companies are business possibilities with SMEs who are contract manufacturers for large multinational players facilitating tie ups for expertise in manufacturing different varieties of cookies franchisee arrangements can be looked for food service chains bakery cafes (breads, sandwiches, cookies etc.) suitable arrangements wherein Australian companies can bring in the technology for producing bakery products without any Trans fatty Acids. Other grain based snacks The total grain based snack food market, comprising extruded western snacks (excluding chips) and namkeen (an Indian snack) is estimated at around 0.29 Million tonnes (INR 29 Billion in value terms). The organized segment has a 15% share of the market.
Exhibit 7.13 The composition of the snack food market
Unorganized Tonnes TOTAL MARKET Extruded snacks Namkeen 2,45,000 14,000 2,31,000 % share of total 100 6 94 Organized Tonnes 42,000 9,000 33,000 % share of total 100 21 79 Total Tonnes 2,87,000 23,100 2,64,000 % share of total 100 8 92

Source: Rabobank research

In the organized / branded segment, ethnic snacks dominate with about 80% of the volumes. The balance is contributed by extruded western snacks. As per industry sources, sales tax and excise duties account for almost 20% of the Maximum Retail Price (MRP) of these products in the organized sector (Refer Exhibit 7.14).
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-----------------------------------------------------------------------------------------------------------Exhibit 7.14 Typical cost card for Grain Based snacks (Organized sector)
MRP per pack of 35 gms (INR) 10 Retailer's Margin + discount Distributor's Margin Sales Tax # Excise Duty Gross realization Raw Material + Packaging + Manufacturing Distribution Returns Net Realization * For biscuit pack sizes upto INR 100/ kg Source: Industry, Rabobank Research # Varies across states (assumed at 12% for this calculation) 3.85 0.41 0.27 3.4 0.08 0.009 0.006 0.08 39% 4% 3% 34% 0.83 0.44 0.8 0 7.93 MRP per pack of 35 gms (USD) 0.23 0.02 0.1 0.02 0 0.18 % of MRP 100% 8% 4% 8% 0%* 79.3

Pastas The definitions of categories of Pastas are as follows

Category Chilled fresh pasta Segment Overall Definition Made from a combination of wheat flour, water and often eggs, fresh pasta is stored in refrigerators Made from a combination of wheat flour, water and often eggs, pasta is molded into a variety of shapes and boiled Canned pasta & noodles Overall before eating e.g. Chef Boyardee canned pasta All varieties of dried pasta designed to be boiled with water. Typically with a long shelf-life e.g. Buitoni Eliche, Barilla's Dried pasta/noodles Dried pasta/noodles Dried pasta Mini Fusilli. Does not include instant noodles. All noodles, flavored or unflavored, designed to be consumed within minutes of adding to boiling water e.g. Instant noodles Super Noodles, Pot Noodle

& As highlighted in Exhibit 7.15, the chilled fresh pasta & dried pasta has shown an overall growth of 9.2% from 2000 to 2005, the same is forecasted to grow further at a rate of 8.3% by 2010, Exhibit 7.16.

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-----------------------------------------------------------------------------------------------------------Exhibit 7.15 India Pasta & Noodles value. 2000-2005 (INR m, nominal prices)
CAGR Category Chilled fresh pasta % Growth Dried pasta/ noodles % Growth Overall % Growth 1505.3 1436.3 1582.8 10.2% 1659.6 10.2% 1737.9 9.8% 1822.5 9.8% 1899.5 9.3% 1991.7 9.3% 2059 8.4% 2159.5 8.4% 2234.1 8.5% 2341.8 8.4% 9.2% 9.2% 2000 69.1 2001 76.8 11.2% 2002 84.6 10.1% 2003 92.2 9.0% 2004 100.5 9.0% 2005 107.8 7.2% 00-05 9.3%

Exhibit 7.16 India Pasta & Noodles value forecast. 2005-2010 (INR m, nominal prices)
CAGR Category Chilled fresh pasta % Growth Dried pasta/ noodles % Growth Overall % Growth Source: Datamonitor 2341.8 8.40% 2234.1 2005 107.8 2006 114.4 6.2% 2424 8.5% 2538.4 8.4% 2007 121.7 6.4% 2632.4 8.6% 2754.1 8.5% 2008 128.4 5.5% 2861.4 8.7% 2989.8 8.6% 2009 135.3 5.4% 3110.4 8.7% 3245.7 8.6% 2010 142.2 5.1% 3351.1 7.7% 3493.4 7.6% 8.3% 8.4% 05-10 5.7%

There is a bigger market for the dried pasta segment which is growing at a steady rate of 9.7% as compared to a smaller market of 0.7 million kg for chilled fresh pasta. The overall volumes of these are expected to grow at a rate of 7.7% by 2010 as highlighted in Exhibit 7.17.
Exhibit 7.17 India Pasta & Noodles volume. 2000-2005 (million kg )
CAGR Category Chilled fresh pasta % Growth Dried pasta/ noodles % Growth Overall % Growth 20.6 20.1 2000 0.6 2001 0.6 3.1% 21.9 9.1% 22.5 8.9% 2002 0.6 3.0% 24 9.7% 24.6 9.5% 2003 0.6 2.9% 26.6 10.6% 27.2 10.4% 2004 0.6 2.8% 29.1 9.5% 29.7 9.3% 2005 0.7 2.8% 31.8 9.5% 32.5 9.4% 9.5% 9.7% 00-05 2.9%

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-----------------------------------------------------------------------------------------------------------Exhibit 7.18 India Pasta & Noodles volume forecast, 2005-2010 (million kg)
CAGR Category Chilled fresh pasta % Growth Dried pasta/ noodles % Growth Overall % Growth Source: Datamonitor 32.5 9.4% 31.8 34.6 8.7% 35.3 8.6% 37.4 8.1% 38.1 8.0% 40.2 7.5% 40.9 7.4% 43.1 7.1% 43.8 7.0% 46.2 7.4% 47.0 7.3% 7.7% 7.8% 2005 0.7 2006 0.7 2.7% 2007 0.7 2.6% 2008 0.7 2.6% 2009 0.7 2.5% 2010 0.7 2.4% 05-10 2.6%

Market Shares The market for noodles is dominated by Nestle followed by Indo Nissin Foods Ltd with there flagship brands Maggi & Top Ramen. In the pasta segment Chaudary group is the leading player having a market share of 10% by value followed by Capital Foods, Jaya foods, Midland Marconi and others.
Exhibit 7.19 India Pasta & Noodles brand share, by value, 2004-2005 (%)
Company Nestle S.A Nissin Food Products Co. Ltd Chaudary Group Capital Foods Jaya Food Industries Jaya Food Industries Midland Marconi Others Overall Brand Maggi Top Ramen Wai Wai Ching's Secret Bambino Spagetti Bambino Macaroni Mama Chow Others 1.3 1 8.8 100 1.4 1 7.7 100 1.3 1.4 2004 60.5 15.6 9.9 1.5 2005 61.2 15.8 10 1.4

Exhibit 7.20 India Pasta & Noodles value, by brand, 2004-2005 (INR mn nominal prices)
Company Nestle S.A Nissin Food Products Co. Ltd Chaudary Group Capital Foods Jaya Food Industries Brand Maggi Top Ramen Wai Wai Ching's Secret Bambino Spagetti Bambino 28.4 33.1 2004 1305.7 337.7 213.8 32.9 2005 1433.2 370.9 233.4 33.5

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-----------------------------------------------------------------------------------------------------------Company Jaya Food Industries Midland Marconi Others Overall Source: Datamonitor Brand Macaroni Mama Chow Others 2004 27.2 22.6 191.1 2159.5 2005 31.6 24.6 181.5 2341.8

Distribution Being a new and upcoming product in the market, items like pasta & noodles are mainly distributed through independent retailers; customers may need a little introduction before they actually buy these products.
Exhibit 7.21 India Pasta & Noodles distribution channels, by value, 2004-05 (%)
Channel Convenience Stores Independent Retailers Supermarkets/ hypermarkets Others Overall Source: Datamonitor 2004 23.4 60 15.8 0.8 100 2005 23.4 59.9 15.8 0.8 100

Opportunities Noodles/Pastas is a small but growing market in India. There is an opportunity for direct imports of some of the popular pasta types from Australia. Technology Tie-ups for manufacturing extruded Hakka Noodles.

7.3 Grain handling infrastructure

Exhibit 7.22 All India Storage Capacity (Owned & Hired/Covered and CAP), Stocks Held and Capacity Utilization (As of February 2003)
(Figures in '000 Tonnes)
ALL INDIA FCI Owned Capacity Stocks Utilisation State Govt. C.W.C. S.W.C Private Covered Total Hired Total Covered Owned Hired Total CAP (Open) Grand Total

12818 7122 56%

1305 1018 78%

2165 1850 85%

7431 6025 81%

3121 2305 74%

14022 11199 80%

26840 18321 68%

2346 421 18%

3200 1188 37%

5546 1608 29%

32386 19929 62%

Source: Rabobank Research

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-----------------------------------------------------------------------------------------------------------7.3.1 Storage Steel silos can replace the present outdated warehouses to improve the grains storage system. Silo storage is a modern and well accepted concept for storage all over the world. Every year 10-12%of total production is lost due to faulty and vulnerable storage systems resulting into formation of fungus mould contamination and rotting. Pests and rodents not only consume the grain but also pollute it. Silos provide huge capacity which ranges from 1,000 tonns to 50,000 tonns and grains can be stored for the whole year. The government and the Food Corporation of India (FCI) itself have adopted silo storage system at various places. Storage systems will put an end to the unhealthy storing of grains and thereby save millions in rupees by keeping the grain in good condition, saving on land area and creating economic and gentle material handling. In 2005, Ahmedabad-based Adani Group has bagged the mandate to construct bulk silos for storing and handling grain for the Food Corporation of India (FCI). The project, which was valued at about INR 8000 million (USD 200 million), marked the entry of the private sector into FCI's domain. The project involved creation of 1.8 million tonnes of grain storage and handling capacity by the private sector on a build, own and operate basis. As per the original proposal, FCI has guaranteed 100 per cent utilisation of the infrastructure for ten years and 75 per cent for the next 20 years. The procurement, ownership and maintenance of the wagons will be the private player's responsibility. Australia with its expertise in bulk handling could be a good technical partner for Indian firms in this area

7.4 Outlook
Indias wheat production would be stagnated between 72 to 73 million tonnes in the years to come as the area under cultivation and productivity has been stabilised at 26 million hectares and 2700 kilograms per hectare. The inability of the public procurement system to procure enough wheat for food security purpose and the increasing demand for wheat has forced India to import wheat from the international market and this trend might continue on and off in the years to come depending on the monsoon. Though only 10% of the total wheat is processed into value added items like branded atta, biscuits, breads and namkeen, the processed wheat based products market is growing at an average of 6% where as the wheat production is stagnating.

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-----------------------------------------------------------------------------------------------------------Australian companies have good opportunities for partnering with Indian business in developing the wheat based products market. Indian bread market is about INR 38 billion (USD 0.90 billion) growing at about 6%. Australian companies can join hands with SMEs for new product development and technologies for instant mixes. Indian biscuit market is INR 69 billion (USD 1.7 billion) growing at about 7.5% per annum. Opportunities for Australian companies lies in joining hands with SME players to make different varieties of cookies and biscuits with limited trans fatty acids. Bakery franchising is another area of interest for the Indian investors wherein Australia has good expertise. Indian Pasta market is currently small but it is growing at a rate of about 7-9%. Australian firms could explore direct exports of its pasta to India and develop the market further. Growth of organized retailing also provides enough opportunities for pasta exports into India.

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