FOOD PROCESSING

INDUSTRY IN INDIA
A BRIEF STUDY FOR THE YEAR 2018

11/5/18

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Table of Contents
1. About this Industry
a. Industry Definitions 2
b. History of food processing industry 2
c. Main Activities 3

2. Industry at a Glance 4

3. Industry Performance
a. Key External Drivers 5
b. Current Performance 5
c. Market Overview 6-7

4. Products and Markets

a. Products and Services 8
b. Market Size 8
c. International Trade 9

5. Major Companies
a. KISSAN 10
b. RUCHI 10
c. NESTLE 10
d. PARLE AGRO 11
e. AMUL 11
f. REI AGRO 12
g. BRITTANIA 12
h. KOHINOOR FOODS 13

6. Operating Conditions
a. Investment 14
b. Government Initiatives 15
c. Regulation and Policies 16
d. Vision and Road Ahead 17-18

7. Porter’s Five Forces Model 19-25

8. Conclusion 26

References

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CHAPTER 1
ABOUT THE INDUSTRY

1. A. Industry Definitions
Food processing is the transformation of agricultural products into food, or of one form
of food into other forms. Food processing includes many forms of processing foods,
from grinding grain to make raw flour to home cooking to complex industrial methods
used to make convenience foods.

The Indian food industry is poised for huge growth, increasing its contribution to world
food trade every year. In India, the food sector has emerged as a high-growth and high-
profit sector due to its immense potential for value addition, particularly within the food
processing industry.
Accounting for about 32 per cent of the country’s total food market, The Government of
India has been instrumental in the growth and development of the food processing
industry. The government through the Ministry of Food Processing Industries (MoFPI)
is making all efforts to encourage investments in the business. It has approved proposals
for joint ventures (JV), foreign collaborations, industrial licenses, and 100 per cent
export oriented units.

Food processing has an important role to play in linking Indian farmers to consumers in
the domestic and international markets. The industry engages approximately 1.77
million people in around 38.6 thousand registered units with fixed capital of $ 29.7
billion and aggregate output of around $ 144.6 billion. Major industries constituting the
Food processing industry are grains, sugar, edible oils, beverages and dairy products.

1. B. History of Industry
The origin of food processing goes all the way back to ancient Egypt, yet the period of
those developments seems to symbolize the history of the culture of mankind.
Nowadays, bread, which is characterized by its use of the fermentation action of yeast
and which uses wheat flour as its raw material, is baked all over the world. The origins
of beer also go back to Babylon and Egypt in the period from 3,000 to 5,000 BC. The
foundation of the modern industry was built up with the introduction of machinery and
technology of new methods from Germany. Nowadays, the processed foods that are
thriving in grocery shops are modern processed foods and traditional foods, but their
manufacturing technology, process control and manufacturing and packaging
environmental facilities have been advanced and rationalized to an incomparable extent
in the last 30 years. As a result, products with high quality and uniformity are now being

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 manufactured. This is based on the advancement of food science, and is, moreover, due
to the general introduction of hygienic, applied microbiology, mechanical engineering,
chemical engineering, electronic engineering and high-polymer technology. The most
remarkable developments until now have been convenient pre-cooked frozen foods,
retort pouch foods and dried foods. The mass production of excellent quality processed
foods without using unnecessary food additives has been made possible in the last 30
years by grading and inspecting the process materials, carrying out proper inspections of
processed foods, and advances in processing technology, installation and packaging
technology and materials.

1. C. Main Activities

• Agriculture: raising of crops and livestock, and seafood

• Manufacturing: agrichemicals, agricultural construction, farm machinery and supplies,

seed, etc.

• Food processing: preparation of fresh products for market, and manufacture of

prepared food products

• Marketing: promotion of generic products (e.g., milk board), new products,

advertising, marketing campaigns, packaging, public relations, etc.

• Wholesale and food distribution: logistics, transportation, warehousing

• Foodservice (which includes catering)

• Grocery, farmers' markets, public markets and other retailing

• Regulation: local, regional, national, and international rules and regulations for food
production and sale, including food quality, food security, food safety,
marketing/advertising, and industry lobbying activities

• Education: academic, consultancy, vocational

• Research and development: food technology

•Financial services: credit, insurance

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 CHAPTER 2
INDUSTRY AT A GLANCE
In the given picture we can get a common info on how the industry is running and progressing:

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 CHAPTER 3
INDUSTRY PERFORMANCE

3. A. Key External Drivers

The force that is responsible for the insane and constant growth of the Indian food
processing industry can be mainly attributed to the following stimuli:
1. Agro-commodity Hub:
India’s economy is largely dependent on the agriculture it has which has pushed it to
become one of the largest producers of various agricultural products. For e.g.: Milk
products, dry fruits, spices, etc.

2. Huge Consumer Base:

Having the second largest population in the world of around 1.35 billion, the industry
has never faced any deficit of feeding mouths and consumers.

3. Strong Economy:
It is the world's sixth-largest economy by nominal GDP and the third-largest by
purchasing power parity (PPP). The country ranks 139th in per capita GDP (nominal)
with $2,134 and 122nd in per capita GDP (PPP) with $7,783 as of 2018. The AGR
of Indian economy is at 8.2% as of 2018. This strong economy growth has led to high
investment and increase in the consumption.

4. Conducive Policies:
Indian government has been supportive of the food processing industry as it has
provide it with government incentives, subsidies, investment and reformed policies
that may help in the continuous growth of the industry in long term.

3. B. Current Performance
The industry engages approximately 1.77 million people in around 38.6 thousand
registered units with fixed capital of $ 29.7 billion and aggregate output of around $
144.6 billion. Major industries constituting the Food processing industry are grains,
sugar, edible oils, beverages and dairy products. Food processing industry in India has
two major sub-segments namely food and grocery retail (92%) and the foodservice
market (8%).Major food categories such as dry food grocery, dairy products, fresh
produce, perishables, spices have a share of 34.7%, 16%, 15.6%, 8% and
6% respectively in the Food processing industry.
The food processing industry is one of the largest industries in India and ranks fifth in
terms of production, consumption and exports. As per the latest data available, food

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 processing sector is expected to reach US$ 258 billion in FY15.In FY16* (till December
2015), food processing industry constituted 14 per cent to India’s GDP through
manufacturing.

3. C. Market Overview
India is a country of striking contrasts and enormous ethnic, linguistic, and cultural
diversity. It has a population of 1.1 billion, and it is comprised of 28 states and seven
Union Territories (under federal government rule). The states differ vastly in resources,
culture, food habits, living standards, and languages. Vast disparities in per-capita
income levels exist between and within India’s states. About75 percent of the country’s
people live in 550,000 villages; the rest in 200 towns and cities. There are30 cities with
a population above one million people. India has the largest number of poor, with 35
percent of the population surviving on less than $1per day, and 80 percent of the
population surviving on less than $2 per day1. Nearly 51 percent of Indians‟
consumption expenditures go for food (54 percent in rural area and 42 in urban areas);
mostly for basic items like grains, vegetable oils, and sugar; very little goes for value
added food items. In recent years, however, there has been an increased shift towards
vegetables, eggs, fruits, meat, and beverages. Religion has a major influence on eating
habits and, along with low purchasing power, supports a predominantly vegetarian diet.
Some observers of India’s economic scene are, however, highly optimistic about
consumption growth potential, and believe that rising income levels, increasing
urbanization, a changing age profile (more young people), increasing consumerism, a
significant rise in the number of single men and women professionals, and the
availability of cheap credit will push India onto a new growth trajectory. These segments
of the population are aware of quality differences, insist on world standards, and are
willing to pay a premium for quality. Nonetheless, a major share of Indian consumers
has to sacrifice quality for affordable prices.
Potential US exporters should also bear in mind that India’s diverse agro-industrial base
already offers many items at competitive prices. Results of the “Market Information
Survey of Households, “conducted by the National Council of Applied Economic
Research, show that the share of households in the upper middle/high income group
(annual household income > Rs. 90,000, or$11,200 on purchasing power parity basis)
has grown from 14% in 1989-90 to 28% in 2001-02, and is projected at 48 percent in
2009-10. Correspondingly, there has been a decline in the low-income group. Sixty-five
million people are expected to enter the 20-34 year age group from 2001 to 2010. By
2025, 40 percent of Indians are expected to be urban dwellers. Structural reforms and
stabilization programs during the 1990s have contributed to India’s sustained economic
growth, which has been relatively strong over the past two decades, averaging 6 percent
annually. Since 1996, the Indian government has gradually lifted import-licensing
restrictions, which had effectively prohibited imports. On April 1, 2001, all remaining

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quantitative restrictions were removed, putting India incompliance with its WTO
commitment. Nonetheless, the government continues to discourage imports, particularly
agricultural products, with the use of high tariffs and non-tariff barriers. Import tariffs
on most consumer products, although declining, are still high, ranging from 30.6 to
52.2percent. Some sensitive items, such as alcoholic beverages, poultry meat, raisins,
vegetable oils, wheat, rice, etc., attract much higher duties. Nontariff barriers include
unwarranted sanitary and sanitary restrictions and onerous labeling requirements for pre-
packaged foods. Other factors adversely affecting imports include a poorly developed
infrastructure (transportation and cold chain), a predominantly unorganized retail sector,
and outdated food laws. However, some positive factors are:
• Rising disposable income levels
• Increasing urbanization and exposure to Western culture
• Growing health consciousness among the middle class
• Growing consumerism
• Changing age profile
• Increasing availability of cheap consumer credit
Current status of industry is shown in below table:
Indian Food Processing Industry Status

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 CHAPTER 4
PRODUCTS AND SERVICES

4. A. PRODUCTS AND SERVICES

Indian food processing industry is the world’s second largest producer of food next to
China and has the potential of being the biggest in the food and agricultural sector. The
main products and services provided by the given industry are:
 Canning of food materials

 Dairy processing (India is the largest producer of milk and milk products)

 Specialty processing

 Packaging of food materials

 Fruit and Vegetables ( Second largest producer in the world)

 Meat and poultry items

 Fisheries and sea food processing

 Thermo processing

 Packaged/Convenience foods

 Alcoholic beverages and Soft drinks

 Grain and wheat processing

 Spice processing and packaging

4. B. Market Size
The Indian food and grocery market is the world’s sixth largest, with retail contributing
70 per cent of the sales. The Indian food processing industry accounts for 32 per cent of
the country’s total food market, one of the largest industries in India and is ranked fifth
in terms of production, consumption, export and expected growth. It contributes around
8.80 and 8.39 per cent of Gross Value Added (GVA) in Manufacturing and Agriculture
respectively, 13 per cent of India’s exports and six per cent of total industrial investment.

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 The Indian gourmet food market is currently valued at US$ 1.3 billion and is growing at
a Compound Annual Growth Rate (CAGR) of 20 per cent. India's organic food market
is expected to increase by three times by 2020.
The online food ordering business in India is in its nascent stage, but witnessing
exponential growth. With online food delivery players like FoodPanda, Zomato,
TinyOwl and Swiggy building scale through partnerships, the organized food business
has a huge potential and a promising future. The online food delivery industry grew at
150 per cent year-on-year with an estimated Gross Merchandise Value (GMV) of US$
300 million in 2016.

4. C. International Trade
Food processing industry is one of the biggest exporter in India. During FY11–16, India's
exports of processed food and related products (inclusive of animal products) grew at a
CAGR of 11.74 per cent, reaching US$ 16.2 billion.
Main export destinations for food products have been the Middle East and Southeast
Asia. In FY17* India’s exports stood at US$ 1.3 billion.

Chart Title
25
21.7 22 21.5

20
17.3
16.2
15

9.3
10

0
FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016

Total Exports (in Billions $)

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 CHAPTER 5
MAJOR PLAYERS

1. KISSAN
Introduced primarily for British settlers in India, Kissan
has been present in India since 1935. The UB Group,
under the Late Mr Vittal Malya then, acquired Kissan
from Mitchell Bros in the year 1950. However, in 1993,
Hindustan Unilever Ltd took it over from the UB Group.

Since its launch, innovation has been the main approach. The brand introduced new
formats of food, such as canned fruits and vegetables, baked beans, and the like. Over
time, Kissan evolved to become the first ever fruit and vegetable brand in the country.
From there onwards, the journey has been focussing primarily on real ingredients, fresh
vegetables and fruits.

2. RUCHI
Ruchi Soya Industries is among the top five FMCG
companies in India with a turnover of over Rs 26,000 crore.
It is among the 50 fastest growing FMCG companies in the
world, and is the number one cooking oil maker and palm
plantation company in India.
Over the years, the company has forayed into making soya
foods, bakery fats and vanaspati products and has
established a strong presence in the market.
Ruchi Soya is known as the country’s largest integrated oilseed solvent extraction and
edible oil refining company in terms of oilseed crushing and oil refining capacity. It has
emerged as the leader of India’s edible oil industry (based on volumes) with five port-
based refineries, three standalone crushing plants, eight integrated crushing and refining
plants, one refinery and vanaspati plant and two palm fruit processing units. Nutrela,
Vanaspati and Sunrich represent strong brands of the company.

3. NESTLE
Nestle India is a subsidiary of NESTLÉ S.A. of
Switzerland. With eight factories, 4 branch offices and a
large number of co-packers, it provides consumers in India
with products of global standards and is committed to long-
term sustainable growth and shareholder satisfaction. The
products offered by Nestlè in India range across categories
such as milk and nutrition, chocolates and confectionary,
beverages and prepared dishes and cooking aids.

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 Some of the famous brands of the company are Nescafe, Nestlè Everyday, Sunrise,
Maggi, Kitkat, Milkybar, Milkmaid, Nestea, Munch, Bar one, Polo and many more. It
has focused on Taste, Nutrition, Health and Wellness and well-being of the customers
and its tagline ‘Good Food, Good life’ resonates with that. It aims to create value to the
customers by offering a wide variety of safe, high quality food products at prices that
are affordable. It constantly develops its product range so as to meet the changing needs
and demands of the customers. The company with its product offerings has also given
a major push to the dairy sector of the country and has helped develop the milk
economy. Nestle is the market leader in various categories such as Infant Cereals
(96.5%), Instant Pasta(65.2%), Instant Noodles (59.5%), White Chocolates and wafers
(62.6%).

4. PARLE AGRO
Parle Agro is an Indian private ltd company founded in
1984 that owns Frooti, Appy, LMN, Hippo and Bailey.
They are the largest Indian food and beverage company,
with brands that have won the hearts of consumers
everywhere, they are in almost every home across the
length and breadth of India.
In 1959, operations started as Baroda Bottling Co for carbonated beverages. At Parle
Agro, it's not just about the business. It's how they go about it. It's about the people. It's
about the culture and ethics. It's also about sustainability and social responsibility.
Their philosophy is built around their need to lead, their need to innovate, and their
need to make the world a better place with a little contribution from us.

5. AMUL
Amul is an Indian dairy cooperative, based at Anand in
the state of Gujarat. Founded in 1946, the brand is today
managed by the Gujarat Co-operative Milk Marketing
Federation Ltd (GCMMF) which is jointly owned by
about 3,000,000 milk producers in the state.
Amul the co-operative was formed as a response to the exploitation of marginal milk
producers by agents and traders of the existing dairy in the state. The co-operative has
gone from strength to strength, on the back of the inspired leadership of Mr
Tribhuvandas Patel, the Founder Chairman and Dr Verghese Kurien, who was entrusted
with the task of running the dairy from 1950.
The Amul model has helped India to emerge as the largest milk producer in the world.
More than 15,000,000 milk producers contribute their milk in 144,500 dairy cooperative
societies across the country. The milk is processed in 184 district co-operative unions
and marketed by 22 state marketing federations, ensuring a better life for millions.

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6. REI AGRO
Raindrops basmati rice comes from the house of REI
Agro Ltd – world’s largest basmati processing company.
REI Agro Ltd was established in the year 1994 with a
vision to consolidate the fragmented basmati rice
industry. Today REI is India’s leading food major and is
listed in Bombay Stock Exchange (BSE), National Stock
Exchange (NSE), London Stock Exchange and Singapore Stock Exchange.

The company commands a sizeable 22 per cent share of world’s basmati market.

It follows an integrated business model and is equipped with the latest technology
available globally. The state-of-the-art facilities and ISO 9001:2000 conforming to
quality standards have resulted in superior quality grain at an excellent value
proposition. The company enjoys investment grade rating from Credit Analysis and
Research Ltd (CARE) for short term debt.

The Company offers a wide range of brands like Raindrops Extra Long Grain (ELG),
Raindrops Gold Supreme, Raindrops Gold Royal, Raindrops Gold Super, Raindrops
Supreme, Raindrops Royal, Raindrops Select, Raindrops Super, Raindrops Popular,
Raindrops Daily and Raindrops Rozana. With wide choice at all the price points, REI
Agro has become a household name.

7. BRITTANIA
Britannia is one of the leading food companies India and
has a legacy of more than 100 years. Today it is among
the most trusted food brands in India. Its portfolio
includes biscuits, bread, cakes, rusk and dairy products
including cheese, beverages, milk and yoghurt. It is the
largest brand in organized bread market. Its products
reach over five million retail shops and 50 per cent
Indian households.

Total income of the company reached Rs 10,156.47 crore (US$ 1.58 billion) in FY18
and 2,585.84 crore (US$ 385.72 million) in Q1 FY19.

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8. KOHINOOR
Established in 1989, Kohinoor has presence in over 60
countries. The company owns one of the finest basmati
rice brands, also a wide assortment of food products that
include wheat flour, ready-to-eat curries and meals,
simmer sauces, cooking pastes to spices, seasonings and
frozen food.

At present, the company has customers in the USA, Canada, Australia, New Zealand
and the UK, as well as the Middle East and Southeast Asian countries. Kohinoor has
two 100 per cent fully owned subsidiaries - Kohinoor Foods Inc, operating from New
Jersey, USA that looks after the North American and Canadian markets; and Indo
European Foods Ltd, in the UK with headquarters in London, which looks after the
European markets. The company also assists Indian farmers in bringing up their crops
in good vigor and health and also possesses a state-of-the-art rice manufacturing facility
at Haryana, India.

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 CHAPTER 6
OPERATING CONDITONS

6. A. INVESTMENT
According to the data provided by the Department of Industrial Policies and Promotion
(DIPP), the food processing sector in India has received around US$ 7.54 billion worth
of Foreign Direct Investment (FDI) during the period April 2000-March 2017. The
Confederation of Indian Industry (CII) estimates that the food processing sectors have
the potential to attract as much as US$ 33 billion of investment over the next 10 years
and also to generate employment of nine million person-days.
Some of the major investments in this sector in the recent past are:
1. Global e-commerce giant, Amazon is planning to enter the Indian food retailing sector
by investing US$ 515 million in the next five years, as per Mr Harsimrat Kaur Badal,
Minister of Food Processing Industries, Government of India.

2. Parle Agro Pvt. Ltd. is launching Frooti Fizz, a succession of the original Mango Frooti,
which will be retailed across 1.2 million outlets in the country as it targets increasing
its annual revenue from Rs 2800 crore (US$ 0.42 billion) to Rs 5000 crore (US$ 0.75
billion) by 2018.

3. US-based food company Cargill Inc., aims to double its branded consumer business in
India by 2020, by doubling its retail reach to about 800,000 outlets and increase market
share to become national leader in the sunflower oil category which will help the
company be among the top three leading brands in India.

4. Mad over Donuts (MoD), outlined plans of expanding its operations in India by opening
nine new MOD stores by March 2017.

5. DANONE SA plans to focus on nutrition business in India, its fastest growing market
in South Asia, by launching 10 new products in 2017, and aiming to double its revenue
in India by 2020
.
6. Uber Technologies Inc. plans to launch UberEATS, its food delivery service to India,
with investments made across multiple cities and regions.

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6. B. GOVERNMENT INITIATIVE
Some of the major initiatives taken by the Government of India to improve the food
processing sector in India are as follows:
 The Government of India aims to boost growth in the food processing sector by
leveraging reforms such as 100 per cent foreign direct investment (FDI) in
marketing of food products and various incentives at central and state government
level along with a strong focus on supply chain infrastructure.
 In Union Budget 2017-18, the Government of India has set up a dairy processing
infra fund worth Rs 8,000 crore (US$ 1.2 billion).
 The Government of India has relaxed foreign direct investment (FDI) norms for the
sector, allowing up to 100 per cent FDI in food product e-commerce through
automatic route.
 The Food Safety and Standards Authority of India (FSSAI) plans to invest around
Rs 482 crore (US$ 72.3 million) to strengthen the food testing infrastructure in India,
by upgrading 59 existing food testing laboratories and setting up 62 new mobile
testing labs across the country.
 The Indian Council for Fertilizer and Nutrient Research (ICFNR) will adopt
international best practices for research in fertilizer sector, which will enable farmers
to get good quality fertilizers at affordable rates and thereby achieve food security
for the common man.
 The Ministry of Food Processing Industries announced a scheme for Human
Resource Development (HRD) in the food processing sector. The HRD scheme is
being implemented through State Governments under the National Mission on Food
Processing. The scheme has the following four components:
o Creation of infrastructure facilities for degree/diploma courses in food
processing sector
o Entrepreneurship Development Program (EDP)
o Food Processing Training Centers (FPTC)
o Training at recognized institutions at State/National level

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6. C. POLICIES AND REGULATIONS
Highlights of Budget 2018-19 in respect of Food Processing sector
DAC & FW would reorient its ongoing schemes and promote cluster based development
of Agri commodities and regions in partnership with the MoFPI, commerce and other allied
Ministries.

Pradhan Mantri Kisan Sampada Yojna (PMKSY) - Allocation has been increased from Rs.
715 crore in RE 2017-18 to Rs. 1400 crore in RE 2018-19.

Tomato, Onion and Potato processing- Operation Green has been launched to promote
FPOs, agro logistics, processing facilities and professional management with a sum of Rs.
500 crore.

State of the Art Testing facility would be set up at 42 Mega Food Park to promote Agri
Export from current US $ 30 billion to US $ 100 billion.

Corporate Income Tax has been reduced from 30 percent to 25 percent to companies
having annual turnover up to Rs. 250 crores for all sectors.

100 percent income tax exemption from profit derived from activities such as post-harvest
value addition to agriculture would promote operation Green as well as PMKSY. This
provision is applicable to FPOs’ having annual turnover up to Rs. 100 crores.

Setting up of a Fisheries and Aquaculture Infrastructure Development Fund (FAIDF) for

Fisheries sector and an Animal Husbandry Infrastructure Development Fund (AHIDF) for
financing infrastructure requirement of animal husbandry sector. Total Corpus of these two
new Funds would be Rs. 10,000 crore.

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6. D. VISION AND ROAD AHEAD
Going forward, the adoption of food safety and quality assurance mechanisms such as
Total Quality Management (TQM) including ISO 9000, ISO 22000, Hazard Analysis
and Critical Control Points (HACCP), Good Manufacturing Practices (GMP) and Good
Hygienic Practices (GHP) by the food processing industry offers several benefits. It
would enable adherence to stringent quality and hygiene norms and thereby protect
consumer health, prepare the industry to face global competition, enhance product
acceptance by overseas buyers and keep the industry technologically abreast of
international best practices.
The government has sanctioned 42 Mega Food Parks (MFPs) to be set up in the country
under the Mega Food Park Scheme. Currently, 12 Mega Food Parks have become
functional.
 By 2020, Indian Food and retail market is projected to touch $ 482 bn

 By 2020, the Indian Dairy industry is expected to double to $ 140 bn

 By 2020, the Food processing industry has the potential of attracting $ 33 bn of

investment

 By 2030, Indian annual household consumption to treble, making India 5th largest
consumer

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MEGA FOOD PARKS IN INDIA

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 CHAPTER 7
PORTER’S FIVE FORCES REVIEW OF THE INDUSTRY

The Porter's 5 Forces tool is a simple but powerful tool for understanding where power lies in
a business situation. This is useful, because it helps you understand both the strength of your
current competitive position, and the strength of a position you're looking to move into. With
a clear understanding of where power lies, you can take fair advantage of a situation of strength,
improve situation of weakness, and avoid taking wrong steps. This makes it an important part
of your planning toolkit. Conventionally, the tool is used to identify whether new products,
services or businesses have the potential to be profitable. However it can be very illuminating
when used to understand the balance of power in other situations too.

Threat of Entry (high)

The threat of new entry is quite high: if anyone looks as if they’re making a sustained profit,
new competitors can come into the industry easily, reducing profits Profitable markets that
yield high returns will draw firms. The results is many new entrants, which will effectively
decrease profitability. Unless the entry of new firms can be blocked by incumbents, the profit
rate will fall towards a competitive level (perfect competition).
1. Capital Requirements (low)
The capital costs of getting established in an industry can be reduce because of the
government subsidies provided to food processing sector. Financial disaster for most
participants is that the initial setup costs of new ventures were typically very low.
Startup costs are so low that individual, self-financing entrepreneurs can enter. For
example, in mineral water pouch business, costs for accompany are around Rs 350,000
and reaming Rs 750,000 is subsidies by Government.
2. Economies of Scale(low)
In industries that are capital or research or advertising intensive, efficiency requires
large-scale operation. The problem for new entrants is that they are faced with the
choice of either entering one small scale and accepting high unit costs, or entering on a
large scale and running the risk of underutilized capacity while they build up sales
volume. These economies of scale have deterred entry into the industry so that the only
new entrants in recent decades have been state-supported companies the main reason or
source to achieve scale economies is new product development costs. Thus, developing
and launching a new product is very costly. Segment of the market for food processing
Industry is very narrowly define so potential customer are very few that’s why
companies are not able to achieve economies of scales.

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3. Absolute Cost Advantages(high)
Apart from economies of scale, established firms may have a cost advantage over
entrants simply because they entered earlier. Absolute cost advantages often result from
the acquisition or alliances of low-cost sources of raw materials. Absolute cost
advantages may also result from economies of learning. Maul cost advantage in
Pasteurization milk results from its early entry into this market and its ability to move
down the learning curve faster than local player and then making alliances with they
produce milk but marketed by the brand name of Maul. So new enter company alliance
with well establish large firm can easily enter in the company.
4. Access to Channels of Distribution (low)
Whereas lack of brand awareness among consumers acts as a barrier to entry to new
suppliers of consumer goods, a more immediate barrier for the new company is likely
to be gaining distribution. Limited capacity within distribution channels (e.g., shelf
space), risk aversion by retailers, and the fixed costs associated with carrying an
additional product result in retailers being reluctant to carry a new manufacturer’s
product. The battle for supermarket shelf space between the major food processors
(typically involving lump-sum payments to retail chains in order to reserve shelf space)
means that new entrants scarcely get a look in.
5. Governmental and Legal Barriers(high)

Some economists (Amitabh Seen) claim that the only effective barriers to entry are
those created by government. In taxicabs, banking, telecommunications, and
broadcasting, entry usually requires the granting of a license by a public authority. From
medieval times to the present day, companies and favored individuals have benefited
from governments granting them an exclusive right to ply particular trade or offer a
particular service. In knowledge-intensive industries, patents, copyrights, and other
legally protected forms of intellectual property are major barriers to entry. Regulatory
requirements and environmental and safety standards often put new entrants at a
disadvantage to established firms, because compliance costs tend to weigh more heavily
on newcomers .e.g. Prevention of Food Adulteration laws is not only stringent one but
time consuming also. It is considered as an archaic and no industry friendly food law.
It substantial varies from Codex standard. Harmonization of multiple food laws is an
urgent necessity.

6. Retaliation (low)

Barriers to entry also depend on the entrants‟ e

Expectations as to possible retaliation by established firms. Retaliation against a new
entrant may take the form of aggressive price-cutting, increased advertising, sales
promotion, or litigation. The major food processing company has a long history of
retaliation against low-cost entrants. Parle and other budget food processing have

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 alleged that selective price cuts by MNC and other major food processing like Britannia
amounted to predatory pricing designed to prevent its entry into new routes.8 To avoid
retaliation by incumbents, new entrants may seek initial small scale entry into less
visible market segments. New entered company market and targeted the small segments
partly because this segment had big opportunity and large profit (niche marketing).

Rivalry between Established Competitors (low)

For most industries, this is the major determinant of the competitiveness of the industry.
Sometimes rivals compete aggressively and sometimes rivals compete in non-price dimensions
such as innovation, marketing, etc. For most industries, the major determinant of the overall
state of competition and the general level of profitability is competition among the firms within
the industry. In some industries, firms compete aggressively – sometimes to the extent that
prices are pushed below the level of costs and industry-wide losses are incurred. In others,
price competition is muted and rivalry focuses on advertising, innovation, and other non-price
dimensions. Six factors play an important role in determining the nature and intensity of
competition between established firms: concentration, the diversity of competitors, product
differentiation, excess capacity, exit barriers, and cost conditions.
1. Concentration(high)
Seller concentration refers to the number and size distribution of firms competing within
a market. It is most commonly measured by the concentration ratio: the combined
market share of the leading producers. Where a market is dominated by a small group
of leading companies (an oligopoly), price competition may also be restrained, either
by outright collusion, or more commonly through
“Parallelism” of pricing decisions. Thus, in markets dominated by two companies, such
as soft
Drinks (Coke and Pepsi), prices tend to be similar and competition focuses on
advertising, promotion, and product development. Economists measure rivalry by
indicators of industry concentration. The Concentration Ratio (CR) is one such
measure. The Bureau of Census periodically reports the CR for major Standard
Industrial Classifications (SIC's). The CR indicates the percent of market share held by
the four largest firms (CR's for the largest 8, 25, and 50 firms in an industry also are
available). A high concentration ratio indicates that a high concentration of market share
is held by the largest firms -the industry is concentrated. With only a few firms holding
a large market share, the competitive landscape is less competitive (closer to a
monopoly). A low concentration ratio indicates that the industry is characterized by
many rivals, none of which has a significant market share. These fragmented Markets
are said to be competitive. The concentration ratio is not the only available measure;
the trend is to define industries in terms that convey more information than distribution
of market share. In food processing industry concentration ratio is high that indicate

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 high concentration of market share is held by the largest firms like ITC (tobacco),
Cadbury (chocolates) etc. As the number of firms supplying a market increases,
coordination of prices becomes more difficult, and the likelihood that one firm will
initiate price-cutting increases. However, despite the common observation that the
elimination of a competitor typically reduces price competition, while the entry of a
new competitor typically stimulates it, systematic evidence of the impact of seller
concentration on profitability is surprisingly weak. Richard Schmalensee concluded
that: “The relation, if any, between seller concentration and profitability is weak
statistically and the estimated effect is usually small.”
2. Diversity of Competitors (low)
The extent to which a group of firms can avoid price competition in favor of collusive
pricing practices depends upon how similar they are in terms of origins, objectives,
costs, and strategies. In food processing industry it is very low here firm always try to
compete rival strategies and there product prices e.g. coke and Pepsi, magi and top
Ramon ,Amul ice cream and havmor ice cream.
3. Product Differentiation
The more similar the offerings among rival firms, the more willing customers are to
substitute and the greater the incentive for firms to cut prices to increase sales. Where
the products of rival firms are virtually indistinguishable, the product is a commodity
and price is the sole basis for competition. Commodity industries such as food
processing agriculture, mining, and petrochemicals tend to be plagued by price wars
and low profits. By contrast, in industries where products are highly differentiated
(perfumes, pharmaceuticals, restaurants, management consulting services), price
competition tends to be weak, even though there may be many firms competing. Food
processing industry it is very low here firm always try to compete rival strategies and
there product prices because they have more or similar offering and there product are
virtually indistinguishable e.g. coke and Pepsi, magi and top Ramon ,Amul ice cream
and havmor ice cream
4. Excess Capacity and Exit Barriers
Why does industry profitability tend to fall so drastically during periods of recession?
The key is the balance between demand and capacity. Unused capacity encourages firms
to offer price cuts to attract new business in order to spread fixed costs over a greater
sales volume. Excess capacity may be cyclical (e.g. the boom
–
Bust cycle in the semiconductor industry); it may also be part of a structural problem
resulting from overinvestment and declining demand. In these latter situations, the key
issue is whether excess capacity will leave the industry. Barriers to exit are costs
associated with capacity leaving an industry. Where resources are durable and
specialized, and where employees are entitled to job protection, barriers to exit may be

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 substantial. Conversely, rapid demand growth creates capacity shortages that boost
margins. On average, companies in growing industries earn higher profits than
companies in slow growing or declining industries see figure 3.4. In food processing
industry it will not effect because food demand is always increase or maintain because
its directly related to population growth, and in this industry some exit barrier are
working because of Government policies.

Bargaining Power of Buyers (low)

Also described as the market of outputs. The ability of customers to put the firm under pressure
and it also affects the customer's sensitivity to price changes. “Customer has enough option to
switch so they have less bargaining power. The firms in an industry operate in two types of
markets: in the markets for inputs and the marketsfor outputs. In input markets firms purchase
raw materials, components, and financial and labor services. In the markets for outputs firms
sell their goods and services to customers (who may be distributors, consumers, or other
manufacturers). In both markets the transactions create value for both buyers and sellers. How
this value is shared between them in terms of profitability depends on their relative economic
power. Let us deal first with output markets. The strength of buying power that firms face from
their customers depends on two sets of factors: buyers‟ price sensitivity and relative bargaining
power.

1. Buyers’ Price Sensitivity (low)

The extent to which buyers are sensitive to the prices charged by the firms in an industry
depends on four main factors:

The greater the importance of an item as a proportion of total cost, the more sensitive
buyers will be about the price they pay. Beverage manufacturers are highly sensitive to
the costs of metal cans because this is one of their largest single cost items. Conversely,
most companies are not sensitive to the fees charged by their auditors, since auditing
costs are such a small proportion of overall company expenses.

The less differentiated the products of the supplying industry, the more willing the
buyer is to switch suppliers on the basis of price.

The more intense the competition among buyers, the greater their eagerness for price
reductions from their sellers. As competition in the world food processing industry has
intensified, so component suppliers are subject to greater pressures for lower prices,
higher quality, and faster delivery.

The greater the importance of the industry’s product to the quality of the buyer’s
product or service, the less sensitive are buyers to the prices they are charged. The

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 buying power of necessary processed food product like sugar salt etc. is limited by the
critical importance of these components to the functionality of their product.
Bargaining Power of Suppliers (low)
Also described as market of inputs. Suppliers of raw materials, components, and services (such
as expertise) to the firm can be a source of power over the firm. Suppliers may refuse to work
with the firm, or e.g. charge excessively high prices for unique resources. Analysis of the
determinants of relative power between the producers in an industry and their suppliers is
precisely analogous to analysis of the relationship between producers and their buyers. The
only difference is that it is now the firms in the industry that are the buyers and the producers
of inputs that are the suppliers. The key issues are the ease with which the firms in the industry
can switch between different input suppliers and the relative bargaining power of each party.
Because raw materials, semi-finished products, and components are often commodities
supplied by small companies to large manufacturing companies, their suppliers usually lack
bargaining power.
Threat of Substitutes (high)
In Porter's model, substitute products refer to products in other industries. To the economist, a
threat of substitutes exists when a product's demand is affected by the price change of a
substitute product. A product’s price elasticity is affected by substitute products - as more
substitutes become available, the demand becomes more elastic since customers have more
alternatives. A close substitute product constrains the ability of firms in an industry to raise
prices. The competition engendered by a Threat of Substitute comes from products outside the
industry. The price of aluminum beverage cans is constrained by the price of glass bottles, steel
cans, and plastic containers. These containers are substitutes, yet they are not rivals in the
aluminum can industry. The existence of close substitute products increases the propensity of
customers to switch to alternatives in response to price increases (high elasticity of demand).

Buyer propensity to substitute (high)

Relative price performance of substitutes (high)

buyer switching costs (low)

Strategic Implications of the Five Competitive Forces

Competitive environment is unattractive from the standpoint of earning good profits when

 Rivalry is vigorous

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  Entry barriers are low and entry is likely

 Competition from substitutes is strong

Suppliers and customers have considerable bargaining is ideal from a profit-making

standpoint when:
 Rivalry is moderate

 Entry barriers are high and no firm is likely to enter

 Good substitutes do not exist

Suppliers and customers are in a weak bargaining position. But food processing industry is
little bit attractive but not ideal, it gives considerable profit because of the following point
 Rivalry is moderate

 Entry barriers are low and firm is likely to enter

 Good have some substitutes but up to certain extant

 Suppliers and customers are in a weak bargaining position.

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 CHAPTER 8
RECOMMENDATIONS
Growing Indian economy and improving lifestyles of Indians contributing in a big way to the
growth. The Indian snacks market is worth around US$ 3 billion, with the organized segment
taking half the market share, and has an annual growth rate of 15-20 per cent. The unorganized
snacks market is worth US$ 1.56 billion, with a growth rate of 7-8 per cent per year. There are
approximately 1,000 types of snacks and another 300 types of savories being sold in the Indian
market today. There is a big market for snacks in India as urban Indian consumers eat ready-
made snacks 10 times more than their rural counterparts. “Consumers are willing to pay a
premium for both value-added private and branded products, creating immense opportunities
for manufacturers and retailers. The growth of food processing sector has nearly doubled to
13.7 per cent during the last four years. A dominant segment of the food industry, food
processing is estimated to be worth US$ 70 billion with a 32 per cent share. It comprises
agriculture, horticulture, animal husbandries, and plantation. The opportunity for growth is
huge when seen against the fact that while a mere 1.3 per cent of food is processed in India,
nearly 80 per cent of food is processed in the developed world. Significantly, processed food
exports have increased from US$ 6.98 billion in 2003-04 to US$ 20.51billion in 2007-08,
recording a whopping 193.83 per cent growth rate. It realize India's potential in this industry,
investment target of US$ 25.07 billion by 2015 to double India's share in global food trade
from 1.6 per cent to 3 per cent, increase processing of perishable food from 6 per cent to 20per
cent and value addition from 20 per cent to 35 per cent.

At last India is all set to become the food supplier of the world. It has the cultivable land, all
the seasons for production of all varieties of fruits and vegetables, well developed agribusiness
system that works in its own way. There are some Factors such as rapid growth in the economy,
the technological innovations, rise of families with dual incomes and the changing food habits
of the population all point to the increasing need for healthy processed food. The supply chain
sector is very weak with no process owner and this can spell disaster. The food supply chain
needs the attention, the industry and the Government.

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REFERENCES
www.ibef.org
www.investindia.com
www.scribd.com/documents
www.wikipedia.com
MoFPI (Ministry of Food Processing Industry) Annual Report 2016-17

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