Summary

11 October 2007

India is the world’s largest democracy and the fourth largest economy in the world (USD 3 trillion GDP) in Purchasing Power Parity terms after USA, China and Japan. With robust GDP growth rate of eight per cent in recent years and a relatively young population, India offers good prospects as a trading partner and as an investment destination.

India has a large and growing population of over 1 billion people of which, around 300 million are categorised as middle class consumers, who have significant purchasing power. The country also offers a relatively young market with 54 percent of the population below 25 years of age. This sector of the population earns more, spends more and demands more from the market, making India a dynamic society.

It is estimated that the domestic demand for goods and services has doubled over the ten year period to 2007.  The number of households with “high income” is forecast to increase by 60 percent to 44 million over the next four years.

Joint Study on Potential Opportunities in the Indian Food Processing Sector

With the Indian food processing industry at an embryonic stage and well established and recognised Australian expertise in this area available, a joint study on potential opportunities for Australian participation in the Indian food processing sector was commissioned by the Australian Minister for Trade and the Indian Minister for Commerce and Industry during their Joint Ministerial Council (JMC) meeting held on 27-28 February 2007 in Delhi.

The Australian funded study was conducted by Rabo India Finance (RIF). The study undertook a general assessment of the issues and opportunities in the development of the Indian food processing industry through supply chain analysis and opportunity identification in selected food and agri sectors. The study was conducted through secondary data research and discussions with stakeholders and focussed on three agribusiness sectors of significance to Australia and India viz. fruits and vegetables, dairy and grains. In addition, the scope of the field research was directed towards detailed supply chain analysis.

India is the world’s second largest producer of fruits and vegetables; however only two per cent of the total fruits and vegetables produced in India are processed. With increasing household incomes, the demand for fruits and vegetables for consumption both in fresh and the processed form is rising rapidly.  The study identified the gaps in the cold chain and wastage due to poor post-harvest infrastructure in the country as areas where greater investment was needed. These factors contribute to the low export competitiveness of Indian producers.

The processed-food market was a focus of the study as this segment is underdeveloped and presents enormous potential for growth. The study highlighted that the growth of modern, organized retailing — in contrast to the kiosks and small shops through which Indians traditionally purchase food — will drive the demand for value-added fruits and vegetables. The study has also shown that exotic vegetable sector is likely to grow strongly, with the increasing popularity of international cuisines.

India is the largest dairy producer in the world, however, the average productivity of the industry is among the lowest (about one-fifth of Australia’s). Liquid milk is the major form of dairy product consumed and proportionally dairy forms 13% of average household food expenditure. In India, per capita availability of milk is 241 grams per day or approximately 88 kg per year, which is lower than the world average (285 grams per day).

During the past 10 years, the per capita availability has gone up significantly and it is expected to reach 280 grams per day by 2011. The study has highlighted that rising household incomes, increasing urbanization, changing lifestyles and the rapid growth of the private-sector and dairy-processing industry could lead to greater demand for value-added, milk-based products, such as processed cheese, table butter and ice cream.

India is the second largest producer of wheat in the world. Rapid economic growth and urbanisation is leading to dramatic changes in dietary patterns across India. As incomes rise, households tend to increase their consumption of bread and wheat based products and wheat is now a major food staple in India, crucial to India’s food economy and security.

The increased per capita wheat consumption is an indication of the westernisation of the Indian diet. Despite production reaching 70 to 75 million tons, the increasing demand has necessitated imports of wheat in recent years. The study has shown that while consumer demand for wheat varies considerably across the country retailers are increasingly aware of the need to respond to consumer demand for quality products, and a variety of wheat and wheat based products.

Supply chain management is a significant management priority for retailers in today’s business environment. In India, supply chain management activities such as transportation and warehousing have traditionally been perceived as being low value-added activities for management. The joint study questions this perception, noting the rapidly developing food retail sector and fierce competition is forcing retailers to respond rapidly to changes in the market.

The joint study identifies the current constraints on the development of value adding in the agri-food industry in India as being areas of potential investment by the Australian food industry (especially given its R&D and technical strengths). The study also identifies potential opportunities for mutual benefit through partnerships between leading Indian and Australian companies. Further collaborative projects would benefit from close association not only at the commercial level but also through technical co-operation.

Future Processes
Perceptions of the difficulties faced in participating in the Indian market through current market access barriers, supply chain management problems and difficulties in establishing channels for trade and investment are often exaggerated.   The joint study will provide Australian companies with information which will assist them to better understand these issues. 

Specific key findings of the study will be highlighted to Australian businesses over the next few months.  The full report will be made available in a seminar to be presented in India Food Pro 2007 later this year.

Business and Industry enquiries:
For further information on the Indian food industry or to request a copy of the report, email Michael Carter (Austrade New Delhi) at michael.carter@austrade.gov.au

Media enquiries:
Purnima Ganapathy
Ph: +61 2 9390 2319; M: +61 419 127 577
purnima.ganapathy@austrade.gov.au