India is an agri-rich country and the world's second largest producer of fruits and vegetables. According to industry estimates, the processed food market accounts for 32 percent of the total food market which is valued at EUR 67.9 billion. The total exports of the Food Processing Industry have jumped from EUR 4.7 bn in 2002-03 to EUR 13.8 bn in 2006-07. The Ministry of Food Processing Industries (MOFPI) aims to increase India's share in the global processed food trade to 3 percent in the next 8 years from 1.6 percent at present. India is well placed to take advantage of growing food trade due to its strong agricultural base and become a sourcing hub for food products.

As per the report, jointly released by KPMG and FICCI, in the last one year alone, FDI approvals in food processing have doubled, and FDI in the food sector alone is poised to breach the EUR 2.1 billion market. Private Equity (PE) players too have been joining the action. According to a Venture Intelligence Report, while the food and beverage sector witnessed PE investments of a mere EUR 4.2 million in two deals last year, this year has already seen 11 deals worth EUR 106.4 million. There appears to be high scope for consolidation in a fragmented market, with most businesses promising good and sustainable returns. In fact, companies are recording higher growth rate from this sector compared to the home and personal care segment.

Today, multinational companies are betting on India as a source to feed the world. Large investors and corporations, both Indian and international, are capitalizing on the Indian agribusiness as an emerging market with twin opportunities, to cater to the growing Indian middle-class and to export premium processed food.

According to Mr. Pradeep Udhas, Head – Markets, KPMG in India, “The Indian Economy is agrarian in nature, with agriculture contributing to approximately 20% of the Country’s GDP and providing livelihood to almost 67% of the population. India is making an important mark in the global food arena - both as a large producer and exporter of agricultural products and as a very large and growing market for processed foods. The favorable policy environment and increasing interest of corporates in agriculture and agri-food business augurs well for India. Considering the growth witnessed by the sector in the last decade and further improvement in growth rate expected in the years to come, this sector presents varied opportunities for investment across the entire agri-value chain”.

The revival of the agriculture sector is expected to open up a plethora of opportunities for players having strong linkages in the agro value chain. The Food Processing Industry is expected to be one of the biggest beneficiaries of this whole process. Significant investment opportunities are yet to be tapped in the areas of SCM, cold storages, financing, retailing and exports.

The Food Processing Industry is estimated to grow at 9-12 percent in the near future. F&V processing, which is currently around 2 percent of total production is likely to increase to 10 percent by 2010, and further to 25 percent by 2025.Value-addition in food products is expected to increase from the current 8 percent to 35 percent by the end of 2025. Higher sales growth, increased earnings of the companies, rising exports of agri-processed foods and government policy 31 initiatives have set the stage for a buoyant performance by the FPI.

This jointly produced knowledge paper from KPMG and FICCI, aims at highlighting India's potential in the food processing industry. The development of stronger backward and forward linkages within the agri-food chain and the local economy will result in improved productivity and quality. While collaborative efforts to augment infrastructure (storage, cold chain, irrigation) are already being planned, companies can play a greater role in strengthening market linkages.

Highlights

• The processed food market accounts for 32 percent of the total food market. The government is targeting 4% growth for the agri-sector from 2005-20
• Food & beverage sector witnessed PE investments of a mere EUR 4.2 million in 2 deals last year, this year has already seen 11 deals worth EUR 106.4 million
• In the last one year, FDI approvals in Food Processing have doubled, and FDI in the food sector alone is poised to breach the EUR 2.1 billion market
• The total exports of the Food Processing Industry have jumped from EUR 4.7 billion in 2002-03 to EUR 13.8 billion in 2006-07
• Government subsidized food parks, tax breaks, increased FDI, proposals for public-private investment partnerships, increased spending on supply chain infrastructure, a burgeoning middle class, modern retail formats, international road shows have propelled the Industry’s growth

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