Deloitte Report FoodandAgroProcessing

Sponsored by:
National Manufacturing
Competitiveness Council
(NMCC)
Government of India
Enhancing firm level competitiveness

Indian food and agro processing industry
Strategies and road map development
August 2009
Content
Foreword
Background
Objectives and approach
Setting the context

• Overview of global food processing industry
• Characteristics of the industry in developed markets
• Indian food processing industry
• Characteristics of the Indian Food Processing Industry
Tracing the evolution of Food processing industry in Thailand and India
Analysis of Indian Food Processing Industry

• Factor conditions
• Firm Structure and Rivalry
• Demand Conditions
• Support Industries
• Government Support
Key Conclusions and Recommendations
Annexure:
• Results of the Primary Survey (Global Manufacturing Benchmarking Survey)
• Trends for the Future
2
Title of publication Focus area of publication 3
4
NMCC have undertaken a
number of studies towards
enhancing the competitiveness of
manufacturing sector and identify
the current strengths and
constraints of keysectors, and
recommend National level
industry/sector specific policy
initiatives

6
Background
The National Manufacturing Competitiveness Council Deloitte Touche Tohmatsu India Pvt. Ltd. (Deloitte)
(NMCC) has been set up by the Government to provide have been engaged by NMCC to submit a report for
a continuing forum for policy dialogue to energize enhancing the “Firm Level Competitiveness (Strategies
and sustain the growth of manufacturing industries in and Road Map Development)” for Food and Agro
India. In this context, the NMCC have undertaken a Processing sector
number of studies towards enhancing the competitive-
ness of manufacturing sector including identification of This document in the subsequent sections details the
manufacturing sectors which have potential for global Deloitte report on “Firm level competitiveness (Strategies
competitiveness; current strengths and constraints and Road map development)” for the “Food and Agro
of identified sectors, and recommend National level Processing sector” in India
industry/sector specific policy initiatives as may be
required for augmenting the growth of manufacturing
sector.

Objectives and approach
The objectives of the Deloitte engagement were – In addition to the primary/secondary research
of organizations, Deloitte conducted primary
• Understand the competitiveness of firms across their research with key stakeholders and experts.
supply chain The objective was to validate the inputs from
– From the results for organizations in each secondary research and obtain a perspective
sector, identify the key areas for focus for the on the critical success factors and drivers for
organizations based on the critical trends and competitiveness of the sector.
factors driving success – The results from the above were then be
– From the above, provide the contours for aggregated and analyzed to understand the
strategic initiatives and detail a roadmap for “Gaps” in their performance with reference to
implementation. the sector objectives defined by NMCC.
– Recommendations based on the “Gaps”
• Approach identified focusing on the key areas for
– Analyze the performance of organizations consideration in each sector and a road map to
based on data obtained through primary and achieve the sectoral objectives.
secondary research.
8
Competitiveness of
food and agro
processing sector

Global Food and Agro Processing Sector
• The market size of global food, beverage and tobacco products was estimated to be US $ 4,140.3 billion in
2005.
• The size of the global market is around $ 3660 bn in 2005 (not considering tobacco industry which constitutes
about 11%) and estimated to grow to $ 4320 bn in 2010 with CAGR around 3.35%*
Global Food and Beverage Sector –

Category wise contribution
Beverages
25.0%
Food products
T obacco
63.6%
11.4%
Global Food and Beverage Industry
5000
4500
4000
3500
(in mn USD)
3000
% growth
2500
2000
1500
1000
500
0
2001 2002 2003 2004 2005 2006E 2007E 2008E 2009E 2010E
Year
Market Size Growth rate
10
Food products are classified into primary and value added products based on the value addition.
Primary Processed Products Value Added Products
Milled Grains, Spices Beverages, Ready to

Fruits and Vegetables Eat/Cook/Drink Products,
Bakery Products, Processed
Agriculture Tea and Coffee Dry fruits
Sugar Confectionery
Edible Oil (Depending on processing level)

UHT Milk, Milk Powder, etc.
Milk Icecream
Livestock
Egg Powder, Packaged Meat
Eggs, Meat and Preparations
Fisheries Processed Aquatic Food (Depending on processing level)
• Primary processed products

- Include cleaning, grading, sorting and packaging. The products manufactured generally act as inputs for value
added products.
• Value added products:

- Manufacturing these products involves use of processing techniques like blending, high temperature heating &
boiling, chilling, etc. where the use of technology is significant

Global market for the processed foods follows the Consumption Share - Geographic Distribution
economic power of the countries.Developed economies
show more inclination towards processed foods due
to higher income levels. Rapid urbanization and rising Europe
income levels in the developing economies create the 39.0%
demand for processing foods. Low income levels and
poor economic growth of the least developed countries
create the demand for basic staples and carbohydrates
Asia-Pacific
31.1%Distribution
Consumption Share - Geographic
Europe
Rest of the World 39.0%
9.0%
USA 20.9%
Asia-Pacific
The market can be classified in to four major segments depending on the level of processing and the maturity of the 31.1%
market
• Countries like USA, Japan and Australia demand highly organic and functional foods whose preparation involves
al Food Demandhigh technology
• Quality and hygiene factors are the drivers in the Eastern European countries Rest of the World
9.0% meals and
• Developing countries like India, China and Latin America focus primarily on snacks, prepared USA 20.9%
processed meat.
• Carbohydrates still constitute the major food in the least developed markets. Most of the least developed
countries are net importers of food North America, Japan, Western
Europe, Australia
Evolution of Global Food Demand
Eastern Europe
Diet, f unctional,
organic f oods North America, Japan, Western
Europe, Australia
Convenience
India, China, Latin America
f oods
Eastern Europe
Snacks, Prepared
meals
Af rica (Sub Saharan)
Dairy, meat, India, China, Latin America
egg, sugar
Surviving Mass Market Convenience, Quality, High
Snacking Hygiene Technology
Carbohydrate
Af rica (Sub Saharan)
Staples
Surviving Mass Market Convenience, Quality, High

Snacking Hygiene Technology
12
Developed markets are characterized by high US Food Trends
demand for the processed foods
Others 15% Fresh Meat,
Poultry & Fish
• The food processing industry in the USA is consid- 18%
ered as a reference for the developed market.
• There is a very high level of consumption of the Cooking Aids
processed foods. Nearly 70% of them are highly 10%
Farm Produce
value added. More than 80% of the food products 13%
sold in the USA is packaged and have some brand Snacks 6%
association.
• Increasing trend is observed in “Hygienic”, “Better Bakery Products
4% Dairy 13%
for you”, “Organic” and “Nutraceutical* products”
• Although the penetration of the processed foods is Beverages
11% Frozen Foods
very high, the growth rate observed for processed 10%
foods is not significant but only about 2.4%.
U.S. spending on food away from home and

on “other food” increases the most with income
Monthly household spending, US$

900
800
700
600
500
400
300
200
100
0
10-15 15-20 20-30 30-40 40-50 50-70 > 70
Annual household income, U.S. $1,000
Food away from home Meats Cereals

Other food Fruits and vegetables Dairy
Source: U.S. Bureau of Labor Statistics, Consumer Expenditure Survey (2004-05)

for four person household

Innovation and new product launches are the
key priorities for the companies in the food
processing industry in the developed countries.
Since the growth rate of the market is less companies

need to focus on developing new products and acquire
new customers. They spend about 4~13% of their
revenues in advertising so as to create brand awareness
Number of new product launches in US food industry New customers in the existing
markets
15000
New Product offerings
14000
New Product launches (Nos)
13000 Volume increase / Incremental

12000
growth
11000
New Markets
10000
9000
Price Increases
8000
7000
Strategic Acquisitions
6000
5000
None of these
2001 2002 2003 2004 2005
0 20 40 60 80 100
Question: How are you most likely to grow sales in the next year?
Company Name Advertising Spend (2007) % of revenues
Coca Cola 2.8 bn $ 9.7
Unilever 5.3 bn Euro 13.1
Kraf t 1.6 bn $ 4.1
PepsiCo 1.9 bn $ 4.8
Sources: Deloitte Research, Grant Thornton report on Food

companies in USA 2007. Table contains the advertising
spend of few of the top 25 food companies in the world.
Unilever’s Advertising spend includes all its businesses
New customers in the existing

markets
New Product offerings
Volume increase / Incremental

growth
New Markets
Price Increases
Strategic Acquisitions
None of these
0 20 40 60 80 100
Question: How are you most likely to grow sales in the next year?
14
Structure of the industry: The market is
consolidated from farm to the table. Few large
firms controlling the market resulting in
intense competition.
High levels of concentration in the supply chain The companies are Cargill, Archer Daniels Midland,
characterizes the food processing sector in the ConAgra and Cereal Food Processors ).
developed markets
• Similarly, the top 3 firms control 71% of Soybean
Consolidation of Farms: crushing in USA ( Archer Daniels Midland, Bunge,
In USA, the number of farms decreased from 5.65 mn Cargill ). Similar is the situation in beef packing
in 1950 to 2.17 mn in 2000. During the same period, industry where 83% of the market is controlled by
the average size of the farm rose from 213 acres to 434 Tyson Foods, Cargill, Swift & Co and National Beef
acres. The large size of the farms helped in mechanized Packing Co.
agriculture and uniform quality of crops
• Smithfield Foods, Tyson Foods, Swift & Co, and
Seed Companies: Hormel Foods control nearly 64% of the pork
The four concentration ratio in seed companies is more processing market
than 70% (i.e. the top 4 companies control 70% of the
market) with one player Monsanto having more than Retailers:
30% share of the market. The top 5 companies in the food retailing have 46% of
the US market. ( Wal-Mart, Kroger, Albertsons, Safeway
Large Primary Processors: and AholdUSA )
• The four concentration ratio of the flour milling
companies is 63% (as of 2004) (i.e. the top 4 Sources: Agribusiness Consolidation: Squeezing out family
farmers and consumers
companies control 63% of the flour milling in USA.

In developing countries like India, the share of
the processed foods is low compared to that in
the developed markets. Non-processed foods The low levels of
account for nearly 50% of the share. High value
added products account for only 18% of the total processing are driven
share in India.
primarily by the food
• The total size of the Indian food industry is around
US$220 bn in 2005. habits of the
• Of that, primary processed food is around $70 bn
and the value added segment is about $40 bn. population. Fresh
• The remaining share is accounted by non-proc-
essed food (commodity based). fruits and vegetables
• Annual growth rate of the industry is around
9~12%. are preferred
• Employs around 2 mn people (as of 2005)
compared to
processed fruits and
vegetables
Classification of Indian Food and Agro

Processing Industry
Agro & Food Processing Sector
Commodity Fisheries Dairy Meat & Beverages Convenience

Poultry Food
Fish Alcohol Ready to

Sugar processing Milk
Eat/Cook
Processed Fruit
Food Grains Aerated & Vegetable
Others Milk Products Drinks Products
Packaged Bakery and

Spices Confectionery
Water
Non-
Tea and Indian Food Industry $ 220 bn

Edible Oils Coffee
Others
Processed Processed f ood
commodity $ 110 bn $ 110 bn
Primary Processed Value Added

$ 70 bn $ 40 bn
16
Wastage levels in India
Present level of production Post-harvest losses

Commodity
Quantity Average Price Value (Rs. Quantity
% Value (Rs. Crores)
(mn ton) (Rs/Ton) Crores) (mn ton)
Durables (cereals, pulses and
230 10000 230000 10 23 23000
oil seeds)
Semi-perishables (potato,
40 3000 12000 15 6 1800
onion, sweet potato etc)
Perishables (fruits, milk, fish,
210 15000 315000 20 42 63000
eggs etc)
Total 480 11604 557000 14.8 71 87800
Processing levels in India

Processing Level – A Global Comparison
Level of Processing
Products
Organised Unorganised Total
Fruits and Vegetables 1.40% 0.80% 2.20% Developed Nations Developing Nations
Milk and Milk Products 13% 22% 35%
Meat and Poultry
Processing Level (%)
Buffalo meat 21% 21%

Poultry 6% 6% 80 80
Marine Products 8% 8%
70
30
Currently, the processing levels in India are very low and
7
range from 2.2% in fruits and vegetables to around
35% in milk production. Across all segments, the level is
Source: APEDA 25Jun 08 ©2005 Deloitte. All rights reserved
around 7% compared to 30% in a developing country
like Thailand.
Given the level of wastage and the processing levels,

studying the food processing industry of a country with a
similar geographical pattern and economic condition of
India and, understanding the growth pattern of the
industry would provide us with inputs on the initiatives
planned and implemented, critical success factors and
therefore some key learnings.
Source: Rabobank, CII, Anecdotal evidences

Innovation and new product launches are the – Britannia Industries Limited - Rs. 3.47 Crores
key priorities for the companies in the food (0.70 Mn) or 0.133% of the gross turnover
processing industry in the developed countries.
However, given the nascent stage of the food • Global organizations however spend significantly
processing industry in India, spend on R&D has on R&D
been significantly low even for large companies – Nestle - CHF 1.97 bn or 1.80% of the gross
in the organised sector turnover
– Unilever - Euro 927 mn or 2.29 % of the gross
• For example, the R&D spend of some of India’s turnover
prominent companies in the industry are as
follows: Hence, both on an absolute basis as well as on a
– Dabur - Rs. 1.24 Crores (USD 0.25 Mn) or percentage basis, Indian companies have been spending
0.06% of the gross turnover lower on R&D compared to their global peers.
18
Tracing the evolution of Food processing
industry in Thailand and India
Why compare Thailand and India? Thailand Export Share in the World
and India are similar in different parameters
in terms of fragmented land holdings, being
United States
predominantly agricultural based economies, of America,
etc. While Thailand was initially focusing only on 10.57
rice, has later diversified into processing of fruits, Netherlands,
7.91
shrimps, etc. (overall processing level is 30%),
whereas India while producing different varieties
of crops, is not able to increase the levels of
processing of the produce beyond 2-3% France, 7.72
In the early 80s, the share of processed food exports as

Others, 55.24
a percentage of total agricultural exports was around Germany, 6.49
65% for both the countries. However, Thailand has
since increased the value added share to over 90%
Brazil, 4.5
whereas India’s processed food exports is around 70%
Belgium, 4.35
of the total agricultural exports.
Among developing countries, Thailand has been a Thailand, 1.97
relatively early entrant to the processed food exports. India, 1.17
Following rapid growth of export for over three decades,
it is now the second largest exporter of processed food
among developing countries (after Brazil)
Source: International Food Safety Regulation and Processed
India, though possessing vast agricultural resources , is Food Exports from Developing Countries - 2002
not able to capture the export market. The global share
remains stagnant at around 1.1%
The share of processed food exports in total agricultural

exports in Thailand has more than tripled since the early
1970s to a level of over 90% currently. Thailand is the
leading frozen shrimp exporter accounting for over
25% of total world exports. Exports of frozen poultry
and canned food (both fruit and vegetables) have also
expanded rapidly over the past two decades. By the
late 1990s the processed food sub-sector accounted for
13% of total domestic manufacturing and 4% of GDP
In India, food-processing industries accounted for 18%
of domestic manufacturing and over 2% of GDP. While
India has a long history of exporting processed foods,
these exports have shown an increase only from the late
1980s, reflecting the impact of controlled trade regime
over the four decades prior to the 80s. In 1997/98, the
total value of exports was over US$ 3 billion (40% of
total agricultural exports), up from US$ 0.5 billion (10%
of total agricultural exports) in 1980.

While Thailand increased its share in the world agro trade from 1.52% in 1980 to 1.97% in 2004,
India’s share rose marginally from 1.09% to 1.17%. Thailand exported $11 bn of agro products in
2004 compared to $4.6 bn of India (including primary processed)
Value of processed food exports (in mn USD) (Including

Primary Processing) % share in the world ( Agri exports)
1979- 1989- 1999- 1979- 1989- 1999-
COUNTRIES 2003 2004 2003 2004
1981 1991 2001 1981 1991 2001
Malta 21.8 29.1 48.0 95.1 71.9 0.01 0.01 0.01 0.02 0.01
Bolivia 56.3 80.3 355.5 448.5 554.9 0.04 0.05 0.10 0.09 0.10
Italy 3918.0 7863.4 12425.3 16526.9 20267.1 2.58 3.38 3.80 3.94 4.04
Tunisia 134.3 228.8 400.6 340.1 830.8 0.09 0.10 0.12 0.09 0.16
Singapore 1118.3 2051.0 2138.5 2250.2 2714.3 0.67 0.84 0.67 0.49 0.50
United Kingdom 5430.8 8953.5 12791.7 14106.7 18028.9 3.44 3.89 3.68 3.28 3.51
Thailand 2700.7 4943.9 6298.7 8893.6 11040.3 1.52 1.80 1.76 1.96 1.97
Republic of Korea 467.8 719.8 1112.0 1585.8 1835.6 0.26 0.35 0.39 0.36 0.35
Jamaica 101.6 149.9 213.6 230.4 217.1 0.06 0.07 0.07 0.06 0.04
Germany 7703.7 14079.4 18003.2 25210.1 30045.0 4.70 6.29 5.75 6.27 6.49
Greece 920.1 1616.8 1916.2 2214.9 2254.8 0.58 0.80 0.64 0.57 0.52
India 1675.1 2045.9 3310.9 3945.0 4607.8 1.09 0.89 1.19 1.24 1.17
Democratic Rep of Congo 143.3 62.2 16.2 14.8 24.5 0.09 0.04 0.01 0.00 0.01
Kenya 476.8 359.7 558.7 663.5 627.1 0.30 0.21 0.25 0.25 0.21
Peru 259.5 258.7 429.6 472.4 593.1 0.15 0.10 0.16 0.16 0.19
Yemen 21.0 24.2 17.5 53.8 50.4 0.01 0.02 0.02 0.02 0.02
New Caledonia 1.5 0.0 1.4 0.9 1.3 0.00 0.00 0.00 0.00 0.00
Tonga 5.4 0.6 0.7 0.5 1.0 0.00 0.00 0.00 0.00 0.00
Countries with processed food exports in the range 65% to 80% of the total agricultural exports in 1979-81 are
analyzed.
Source: FAO data, Deloitte Research
20
Evolution of Thailand’s Food Processing Sector
Pre-1958 1958 – 1970s 1980s – till now
Agriculture based economy: Focus on commercial crops: Crops like Government’s Focus: First priority for Agro
37% of GDP from agriculture. kenaf, cassava, maize and sugarcane were processing sector in the sixth plan (1986-90) and in
exported. Rice exports continue to decline the subsequent plans. Banks also supported agri-
Rice being the major crop: Area in the overall exports, 14.2% in 1976 and companies by providing loans
under rice cultivation increased from 9.2% in 1986 respectively
8mn rai in 1907 to 26mn rai in 1952 . Evolution of Contract farming: Thai companies
Export Oriented Agro-processing in association with foreign firms started contract
Rice constituted about 46% of the industry: Initial stages of production farming which improved quality and attributed
exports in 1958 of broilers, canned fish and shrimps for for a surge in the export of frozen and chilled
exports commodities (Shrimp /poultry/ fish products)
Rice export was one of the major
earnings for the government – nearly Initial Incentives by Later vertical integration happened especially in
10% of the earnings through rice- Government:Government offered the poultry sector. In 1984, 17 of the 28 major
premium tax Investment Promotion Privileges to companies in Thailand were in Agro processing
investors in the food processing industry. sector.
Food processing technology available This encouraged the transfer of tech-
within Thailand was limited, and food nologies ( The technology to process Biotechnology Focus: Focus on the research in
preservation included only drying, sweetened condensed milk, canned fruits bio-technology in the areas of:
pickling and sugar glazing and vegetable and vegetable oil were then 1. Rice
acquired from Taiwan and Japan) 2. Industrial and Foods
3. Shrimp
4. Usage of natural resources for agriculture
Thailand - Early beginner
Food processing industry in nascent stage Growth of food processing industry
Sources: The waning of National Developmentalism and the Political Economy of Agri-business in Siam: Case studies of development and restructuring in Thailand’s Agri-food
sector – Jasper Adam Goss – 2002, Capitalist development in Postwar Thailand: Commercial Bankers, Industrial Elite and Agribusiness Groups – Akira Suehiro, Evolution of Agro-
biotechnology innovation system in Thailand – Pun-Arj Chairatana

Key Conclusions from the evolution of Agro Access to export markets:
Processing Industry in Thailand • Foreign companies provided the market for the
exports from Thailand. Most of the companies
Shift in focus from rice to other products: were from Japan and USA. Due to these, broiler
• Till 1960, the focus of Thailand was on rice. Rice exports grew annually at 66% from 1975 to 1985.
exports constitutes about 46% of the total exports Canned fish exported to USA had a growth rate of
in 1958. Rice premium tax was the major source of 63% annually in the same period.
revenue for the government at nearly 10–15% of
the total state revenues during 1960s. Government support:
• Identified as a export oriented sector and provided
• Post 1960, other crops like cassava, kenaf, maize various incentives and tax holidays to attract
and sugarcane were grown primarily for exports investment
and the area under rice cultivation reduced
gradually. • Provided assistance in developing the shrimp
production ( in the form of various projects to
Technology collaboration with foreign firms: develop pumping stations for the farms and
• Companies in the shrimp production, poultry and expansion of the farms)
meat processing sector benefited from technology
transfers from foreign companies.
22
Evolution of India’s Agriculture and Food Processing Sector
Before 1960s 1960 - 1990 1991 – to date

Policies were not directed towards Focus on Agriculture: Main objectives were Economic Reforms: Agricultural sector
Agriculture: More focus on Industry sector self-sufficiency in food grains, reasonable was ignored. Industry-first approach,
( esp. capital goods) though 48% of India’s prices for the farmers and affordable prices focusing on removal of industrial
GDP was from agriculture in 1950-51. The for the consumers (especially the poor) licensing, removal of import licensing
need to create a self-reliant and diversified from all manufactured and capital goods,
industry sector motivated planners to adopt a Green Revolution: Introduction of high- tariff reductions and relaxation of rules
import substitution strategy yielding variety of rice and wheat, Provision for foreign investment
of irrigation facilities and fertilizers and However, post- 2000, government
But, in the early 1960s, the GDP growth was Minimum Support Prices for the crops focused on the food processing industry
only 3.9% against the expected 5%. But Creation of buffer stock for food and 100% FDI is allowed automatically in
population growth was 2.3% against the strengthening of the Public Distribution food processing sector
expected 1.4%. As a result food security of System No industrial license required to start
India worsened as India imported cereals Green revolution was successful in bringing the industry except for a few items like
worth 28% of its export earnings the imports to 1.9% of the total export alcohol, beer etc
earnings Export Promotion: Food parks and export
zones were promoted which provides
Land Ceiling Act -1972: To provide lands benefits like duty free imports, profits
to the landless farmers. Ceiling on the land from export sales are exempt from
holding by the farmers corporate taxes etc
Restriction on exports: Agricultural goods

were restricted from being exported. Also,
the prevailing exchange rates did not
favour exports
Food Processing Industry in nascent stage Growth of Food Processing industry
Key Conclusions from the evolution of Agro farmers. It also limits the area of land held by a
Processing Industry in India farmer ( limited to 17 ha – varies in different states)
Food Crisis and Green Revolution: Focus on Food processing industry after 1991:
• Food crisis in India during 1960s forced the • After the economic reforms, government focused
government to adopt Green revolution which on improving the food processing industry in India.
helped in self-sufficiency in food. • Allowance of 100% FDI in food processing
industry, export promotion incentives and other
Focus on improving the poorer sections of the schemes to attract investments.
society: • However, investment in this sector has been very
• To improve the livelihood of the poorer sections of low in India. The government has identified food
the society, land ceiling act was enforced during and agro processing industry as one of the ‘sunrise’
1972. sectors that has high potential for domestic
• The primary aim is to provide land to landless demand and export markets

Analysis of indian food processing
industry
Porter’s Diamond Framework has been employed to compare the competitiveness

of the food and agro processing industries in Thailand and India
• Structure of the
industry / Vertical
integration
• Direct access with the
Firm Structure & farmers
Government
Rivalry • Foreign Direct
Investment / Technology
availability
• Economic reforms
• Incentives for firms
• Attracting foreign
investments Factor Conditions Demand Conditions
• Availability of natural
resources for cultivation • Access to Foreign markets
• Local demand
Support Industries
• Associations and Institutions
24
Factor conditions–
availability of natural
resources

While India and Thailand are major producers of agricultural commodities, Thailand has a significant
share in the exports of the agricultural produce than India. Thailand is the largest exporter of shrimps,
rice, cassava and rubber
Thailand : Producer & Exporter India : Producer
• Agriculture in Thailand is about 10% of the GDP • India has the 2nd largest arable land (161 million
with noticeable level of mechanization hectares) in the world
• 27.6% of the land is arable with 7% under • Largest irrigated land (55 million hectares) in the
permanent cropping and 5 million ha of irrigated world
land • Largest producer of wheat (72 million tones),
• More than 80% of the raw materials used by the accounting for nearly 15% of global wheat
country’s food industry are locally sourced at low production
prices • Largest producer of pulses (15 million tones),
• Thailand is the world’s number one producer of accounting for nearly 21% of global pulse
natural rubber, rice, canned and frozen seafood, production
canned tuna, canned pineapples, and cassava • Largest producer of milk (96 million tons),
− Thailand ranks first in rice production and accounting for nearly 17% of global milk
exports, sharing 4.6% of total production and production
36% of total export of the world. • Largest producer and exporter of spices
− World leader in rubber by constituting 35% of • 2nd largest producer of tea, accounting for nearly
world’s total production and 45% of world’s 28% of the global tea production
total export. • 2nd largest producer of rice (92 million tons),
− Thailand is the top exporter of cassava with accounting for nearly 22% of global Rice
82.5% share of the total cassava export production
• The processed food sector is one of the most • 2nd largest producer of sugarcane (296 million
advanced sectors in Thailand. It accounts for about tons), accounting for nearly 21% of the global
15% of Thailand’s manufacturing output sugarcane production
Sources: Indian Food Processing Industry – Way2 wealth – 2008

Status of Agricultural Engineering Education in Thailand – Asian Institute of Technology, Thailand - 2007
26
Fragmented land holding in both the countries owing to the land holding policies which aimed at
providing land to the landless farmers to improve the poorer sections of the society
Thailand India
Distribution of land holding - 1999 No of households Category of holdings – No of Average Size of

1995-96 Holdings(thousands) holdings (ha)
Without land 454819 Marginal ( less than 1 ha) 71179 0.4
Less than 0.8 ha 565799 Small ( 1 to 2 ha) 21643 1.42
0.8 to 1.6 ha 658060 Semi-medium ( 2 to 4 ha) 14261 2.73

Medium (4 to 10 ha) 7092 5.84
Over 1.6 ha 3908141
Large ( 10 ha and above) 1404 17.21
Total 5586819 Total 115580 1.41
• The World bank aided the Thailand Government in • The ceiling on land holdings was amended on
the distribution of the land to poor farmers 1971 to:
• Thailand’s Office of Agricultural Economics • meet the land needs of the landless farmers
estimated in 1995 that the income of the popula- • reduce the inequalities in land ownership so that
tion working in agriculture is about 15 times lower it may lead to development of co-operative rural
than the income of the population outside the economy and,
agricultural sector. • enlarge self-employment in owned land as distin-
• Average household income in 1999 was 12,729 guished from subletting and tenant cultivation.
Baht (or US$318) per month whereas the average • As per the new guidelines, 17 states amended the
income for farming households was no higher than ceiling legislations. The range of ceiling varied from
1,000 Baht (or US$24) per month. state to state. For instance, in Andhra Pradesh,
• Access to land is fundamental to the livelihoods of the level of ceiling for dry land ranged from 14.16
poor communities in rural areas. Land continues to hectares to 21.85 hectares. Karnataka had the limit
serve as a means of providing subsistence needs as of 21.85 hectares for dry land, while Punjab had
well as of income generation. Holding land enables 20.50 hectares and West Bengal 7.00 hectares. For
family labour to be put to productive use, and irrigated lands with two crops, the limit was lower
provides a safety net for family members who work –Andhra Pradesh – 4.05 to 7.28 hectares, M.P,
in temporary or insecure employment elsewhere. Maharashtra – 7.28 hectares, Punjab – 7 hectares,
• This was particularly evident in Thailand during West Bengal – 5.0 hectares
the economic collapse in 1997 when the sudden
threefold rise in urban unemployment was
mitigated by the absorption of labour in the rural
areas.
Sources: Thailand’s Land Titling Programme: Securing land for the poor? Rebeca Leonard and Kingkorn Narintarakul Na
Ayutthaya
Agriculture census division, Ministry of Agriculture, India. http://www.indiaagronet.com/indiaagronet/AGRI_LAW/agri_laws.
htm

Productivity in India is comparatively low primarily due to cultivating techniques, levels of
mechanization and quality of seeds. Level of mechanization and technology involvement in Thailand is
relatively higher compared to India (explained in the subsequent slides)
India
• The yield per hectare is very low compared to the world levels.
• Thailand has higher productivity in most of the categories compared to India
Cereals Coarse grains Pulses Fruits Vegetables Sugarcane

World 3,078 2,980 793 9,563 16,845 65,293
China 4,848 4,399 1,507 8,214 19,158 69,556
India 2,356 1,179 552 11,811 12,898 62,859
Pakistan 2,302 1,008 465 8,590 13,425 47,934
Brazil 3,364 3,568 802 14,232 18,758 72,289
Philippines 2,813 1,802 723 11,650 8,481 67,104
Thailand 2,584 3,702 900 9,210 8,878 66,400
United kingdom 7,030 5,906 3,638 11,794 21,770 –
United states of America 6,033 7,843 1,803 22,934 27,099 77,515
Differential in productivity: –23% –60% –30% –24% –23% –4%
India and world average
Importance Thailand India
Factor Conditions
Sources: FAO, Rabobank report
28
Demand conditions, firm
structure and rivalry

While Thailand’s industry primarily constitutes Structure of Indian Food Processing Industry
SMEs, India’s food processing industry is
characterized by the significant presence of the Organised,
unorganized sector. This therefore is a constraint 25%
for the implementation of technologies and Unorganised, 42%
practices which are followed by only a few

companies
• Thailand: Thai food processing industry is predomi-

Small Scale, 33%
nantly SMEs (50 ~100 employees and investment
of up to 3 mn $)
• 98% of all industries in Thailand are SMEs and • India: The industry is mainly unorganized with
nearly 42% of the SMEs engage in food processing 75% of the processing units in the unorganized
• However in products like Dairy, Shrimp etc., large category. The organized category though small, is
corporates and the cooperatives have a major growing fast.
share (1997) • Many of the companies are small scale / medium
• Government promoted the cooperative movement sized and hence investment in technology,
in the dairy industry by solidifying contracts and sanitary/Phyto-sanitary measures are unlikely.
subsidies to the farmers and also regulated prices. • Unorganized players are not registered and they
• The number of cooperatives increased from 28 are household/cottage industries having local
with 7785 members in 1988 to 106 with 19969 presence
members in 1997 in the dairy sector • SSI constitutes around 33% of the total number of
• A few companies in Thailand pioneered vertical companies and are companies with investment less
integration in the poultry sector. Charoen than Rs. 1 Cr in fixed assets
Pokphand (CP) group in the late 1960s integrated • Existence of cooperatives in Dairy sector is similar
the entire poultry chain from producing feedstock, to Thailand due to which the processing level of
selling feedstock to the farmers, contract farming milk is higher(35%) compared to other products
of poultry and marketing the poultry (average – 7%)
Condensed Milk Market Share
Thai Dairy Industry 58%
Foremost 20%
Nestle 10%
UHT Milk Market Share
Foremost 50%
Nongpho 25%
Thai Dairy Industry 20%
Sources: The waning of National Developmentalism and the Political Economy of Agri-business in Siam: Case studies of
development and restructuring in Thailand’s Agri-food sector – Jasper Adam Goss – 2002, Indian Food Processing Industry –
Way2wealth - 2008
30
Though contract farming was promoted in Thailand only in the 90s, a number of companies in poultry
and shrimp production had started contract farming during 1970s. Later, agricultural produce was also
done under contract farming. However, in India, contract farming is still in nascent stage with only a
few companies practicing them
• Thailand: Contract farming was given priority by • India: The Agricultural Produce Marketing
the government from the sixth plan and it emerged Committee (APMC) Act required that farm produce
as a major method of production in the country in be sold only at designated government markets
a lot of agricultural produce through registered intermediaries.
• Contract Farming in Thailand started more than • Under the Act, the private sector / processing
three decades ago, in poultry, sugarcane, tobacco, industry was not allowed to buy directly from
pineapple, and vegetables. farmers. The farmers were also restricted from
• In poultry, the system of contracting was put in entering into direct contract with any buyer
place by the Charoen Pokphand (CP) group in the because the produce was required to be
early 1970s. It also introduced wage and price channeled through regulated markets.
guarantee contracts for growers in 1976. The CP • These restrictions acted as a disincentive to
group also tried contract faming in shrimp produc- farmers, trade and industries. The priority,
tion through independent growers and coopera- therefore, was to amend the restrictive APMC Act.
tives in the mid-1980s, with support from the The central government drafted a model APMC
Bank of Agriculture and Agricultural Cooperatives Act (since agriculture falls under the jurisdiction of
(BAAC). However, since farmers were opposed to state governments) in 2002, which allowed private
the fixed price contracts, the cooperatives were players to set up markets not regulated by the
discontinued. Thus, CP no longer practices contract market committee.
farming system in shrimp and procures from open • Under the new Act, it was not required to bring
auction markets and from its own farms agricultural produce covered under contract
• By the early 1990s, contract farming was in place farming to the APMC market / private market;
in the following crops/commodities in Thailand: it may be sold directly from farmers’ fields to
poultry, dairying, palm oil, pineapple, tobacco, contract farming sponsors.
sugarcane, kenaf, asparagus, maize, maize seed, • Several state governments have already initiated
castor oil, eucalyptus, baby corn, cashew nuts, legal amendments to the APMC Act, allowing
sunflower, barley, sea shrimp, cotton, tomato, farmers to sell their produce in open markets, and
tomato seed, rubber, gherkins, peas, string this has given a boost to contract farming.
beans, silkworms, swine, bamboo shoots, ginger, • There are a few successful cases of contract
mushroom and fragrant rice. farming in India like Pepsi in Punjab, Appachi
• By the late 1990s, almost 100 per cent of commer- Cotton Company’s integrated cotton cultivation,
cial production of poultry in the country, especially Ugar Sugar’s barley cultivation, etc
that meant for frozen chicken exports, was under
some form of contract. Later, it expanded to
vegetable seeds and crops like tomato
Source: India’s agrarian crisis and smallholder producers’ participation in new farm supply chain initiatives: A case study of
contract farming, Vijay Paul Sharma – June 2007
Contract Farming Ventures in India: A Few Successful Cases
Thailand Data : http://www.allbusiness.com/finance/534767-1.html

Many states in India have amended the APMC act to facilitate the direct linkages with the farmer.
However only few companies have tapped the potential. More direct linkages and contract farming are
expected in the future
India
• Due to the presence of large number of intermediaries there is an escalation of cost as well as deterioration of
quality.
• The farmer typically gets only 35% of the value where the majority of the price escalations happen in the hands
of the intermediaries
Supply Farmer Village comm. District Wholesaler Sub-wholesaler Retailer Consumer

chain agent comm. agent
Margin- 35% 15% 10% 10% 10% 20%
% share
of final
price
Issues • Non-transparent pricing • Wastage rampant • High prices
• Limited financial • Lack of quality & hygiene consciousness • Limited choices
capabilities • Lop-sided pricing
• Primitive cleaning • Opportunistic profiteering
sorting & grading
facilities
32
India’s domestic market has a significant potential for processed foods which is expected to grow
more with increasing urbanization, upward movement of salary levels and changing lifestyles
• Thailand: Thailand’s domestic market for processed • India : The market size for the processed foods is
foods is estimated to be around $20bn. Domestic expected to increase from US $110 billion currently
demand for processed food goods is showing to US $330 billion by 2014-15 assuming a growth
considerable growth; between 2001 and 2006 of 10%.
sales of ready-to-eat processed meals in Thailand • The share of the value added products in processed
grew 54%, reaching $33 million. foods is expected to double from US $40 billion
• As lifestyles continue to change, the demand currently to US $88 billion during the same period,
for convenient and ready-to-eat processed food growing at the rate of 15%.
products is increasing. Additionally, Thailand’s • Rising Income levels: Indian domestic market is one
sizeable tourism industry, which attracts over 10 of the most attractive consumer markets in the
million tourists per annum, is expected to drive world with the increase in income levels across the
further growth for the country’s food processing population segments. Food and grocery comprise
industry. the largest share (nearly 45%) of the spending pie
• Exports: Thailand exports around $ 11bn of followed by personal care items, thus offering a lot
processed foods and it is the second largest exporter of scope for the food-processing industry
among the developing nations. The encourage- • Changing Lifestyles: Increase in the population of
ment of agro-industry since the 1970s has led to the working women and increase in nuclear double
development of key exports other than rice, such income families in urban areas are some of the
as rubber, sugar cane, and broiler chickens, making other factors that are influencing the lifestyles. As
it the most important industry in terms of contribu- a result, there has been an increase in demand for
tion to GDP. Shrimp farming and processing was processed, ready-to-cook and ready-to-eat food.
According to Euromonitor, money spend by Indians
added in the 1980s, and consequently frozen shrimp
on meals outside the home has more than doubled
exports to Japan and the USA grew rapidly making it
in the past decade to about US $5 billion a year,
one of the largest player in the exports
and is expected to further double in the next 5
years.
• Exports: India exports around $ 5bn of processed
foods in 2007. The major fruits exported are
mangoes, grapes, citrus fruits pomegranates,
lychees, dried nuts etc. China has opened its
market for Indian mango, grapes and bitter gourd.
Efforts are on to secure market access for the fruits
in Japan, USA and Australia. The long awaited
access to the Japanese market for Indian mangoes
was achieved in June 2006. The first consignment
of mangoes left the Indian shores for USA recently.
However, majority of Indian exports are to the
developing nations.
Importance Thailand India Sources: Thai Market Overview – Department of Primary

Industries – Victoria
Demand conditions and
Indian Food Processing Industry – Sector Coverage –
firm structure
Way2wealth – 2008, APEDA Website, Science Tech
Entrepreneur – October 2007

34
Foreign investment in food processing industry in India is very low compared to Thailand. Foreign
companies brought in technology and access to export markets for the Thailand companies.
• Thailand: Thailand has attracted significant invest- • India: Foreign investment in India’s food processing
ments in the food processing industry by Japanese industry is very low compared to Thailand’s food
and US firms which gave access to the export processing industry.
markets • India attracted just US$456 mn of FDI from 2000
• The growing demand for processed foods in Japan to 2006
forced companies to look for new sources. Since • Some of the successful ventures from EU countries
Thailand’s food habits are similar to Japan’s many are Perfetti, Cadbury, Godrej-Pillsbury and Manjini
Japanese companies entered Thailand as early as Comaco
1960s
• Thailand served as a base for USA’s operations
Country of Investment USD mn
during Vietnam War in the 60s, and a lot of
companies entered JVs with Thailand companies to Mauritius 229.3
serve processed foods to US army in the region
• In 1962, the Japanese company Sogoshosha USA 83.8
Mitsubishi had taken a stake of 49% in Thai
Pineapple canning industry cooperation with local Switzerland 74.9
partner Phiphattanakit
Germany 40
• Similarly, Charoen Pokphand (CP) group entered
into partnership with Arbor Acres Farm Inc. of US Netherlands 28.2
for producing parent stock for chicken breeding;
Mitsubishi corporation for breeding large sized Total 456.2
(black tiger) shrimp; and the Dekalb Agresearch Co
of USA for developing a hybrid variety of maize Sources: Capitalist development in Postwar Thailand:
• These multinational companies assisted Thai Commercial Bankers, Industrial Elite and Agribusiness
companies in production technology, and Groups – Akira Suehiro,
developed new markets for the companies. The waning of National Developmentalism and the Political
Economy of Agri-business in Siam: Case studies of devel-
Japanese companies provided modern technology opment and restructuring in Thailand’s Agri-food sector –
in slaughtering the chickens to the companies in Jasper Adam Goss – 2002,
Thailand and sold the product in Japan FDI data – FICCI

Food Safety and HACCP Practices: Level of implementation of SPS standards and HACCP procedures
are high in Thailand compared to India. Adherence of these standards are critical for exporting to
developed economies like EU and USA. This is the reason for Thailand’s higher exports to EU and USA,
whereas India’s major exports going to developing nations
• The SPS (Sanitary and Phytosanitory) standards has been used as a powerful tool to impede international trade
and protect domestic producers through unjustified differential requirements in different markets, unnecessary
costly or time consuming tests, or duplicative conformity assessment procedures
• USA: Although exports of shrimps to the US are not subject to tariffs, they must comply with the HACCP of the
US.
• Japan: In case of Japan, exporters are subject to a pre-certification system, Food Sanitation Law, and
Standardization and Labeling Law of Japanese Agricultural Standards.
• European Union: Exports of shrimps to EU are subject to HACCP, European Commission Rules, Green Dot, and
ISO 9000.
• Thailand: To implement the SPS and HACCP • India: Indian exports are predominantly to the
requirements, a code of conduct was drafted in developing markets. The primary reason for this
1999 in Thailand by 5 organizations: Department is the inability of the suppliers to meet the SPS
of Fisheries, Thai Marine Shrimp Farmers standards.
Association, Thai- Frozen Foods Association, Thai • For example, the rejections of Indian shipments by
Food Processor's Association, and Aqua-culture US has increased from 860 during May 1999-April
Business Club. 2000 to 997 during December 2001-November
• In a survey of the Thai seafood processing industry, 2002
94 % of the 120 companies obtained at least one • Most of the producers and exporters being the
quality standard certification - either ISO9000 small and medium enterprises (SMEs) in nature fail
(30%), HACCP (69%) - or both (28%) to incorporate such standards in their production
• About 77 percent of the firms obtained the process due to their limited financial capacity and
standard within the first three years. This is expertise thus ending up losing export order.
evidence of the increasing awareness among • Very few companies have implemented these
seafood processing companies about the need standards. The cost of implementing these
to comply with SPS standards. Large firms have standards is approximately $10,000, which small
greater incentive to obtain the certification because companies may not be able to afford.
of the lower cost of compliance per unit of output. • Lack of technology / quality standards: e.g. While
• There are instances where the farmers and traders Indian mangoes fetch premium prices in USA,
pooled in huge amount of money for testing the they needs to be irradiated for exports. India has
quality of the food only 1 irradiation center which hinders the growth
potential of the export of the mangoes*.
Sources: SPS and Thailand's Exports of Processed Food, Bhanupong Nidhiprabha, An Appropriate Manufacturing strategy for
the Thai Food Processing Industry – Pongpattanasili, Food Safety in a Globalizing World: Opportunities and Challenges for
India, Environmental Standards in Food Processing Industry: Impact on South Asian Exports – 2006
* - Anecdotal evidences
36
The structure of the industry has had an impact at the firm level. Indian companies have very low
levels of collaboration with the customers in key areas like production planning and transportation
planning which in turn has an effect on their operational efficiency of inventory turns and on-time
delivery.
% with medium to high collaboration

100.% 5
90.% 4.5
80.%
% of companies
4
70.%
60.% 3.5
50.% 3
40.% 2.5
30.%
2
20.%
10.% 1.5
.% 1
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ot
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sp
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Pr
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Pr
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an
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sp
ve
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St
Pr
Pr
Tr
an
In
ve
Tr
In
Global average European Region

Indian Food Processing Industry High Performing companies
Source: Primary Survey conducted by Deloitte
As discussed in the earlier page, Indian companies score low on the on-time delivery. The on-time
delivery of the global and high performing companies are in more than 98% whereas the on-time
delivery of Indian companies are in the range of 95~97%
Global On Time Delivery Regional On Time Delivery High Performing On Time Delivery
60.% 100.% 100.%

90.% 90.%
50.%
80.% 80.%
% of companies
% of companies
% of companies
70.% 70.%
40.%
60.% 60.%
30.% 50.% 50.%
40.% 40.%
20.%
30.% 30.%
20.% 20.%
10.%
10.% 10.%
.% .% .%
< 93.5 % 93.5 - 95 % 95 - 96.6% 96.6-98.1% > 98.1% < 93.5 % 93.5-95 % 95-96.6 % 96.6-98.1% >98.1 % < 93.5% 93.5-95 % 95-96.6 % 96.6-98.1% >98.1%
Percentage of shipments that meet customer request date (for the different peer groups).
Global a verage European Region

Indian F ood Processing Industry High Perf orming companies
Source: Primary Survey conducted b y Deloitte

Collaboration with the suppliers is also low compared to the global and high performing companies.
100.% 5
90.% 4.5
80.%
% of companies
4
70.%
60.% 3.5
50.% 3
40.% 2.5
30.%
2
20.%
10.% 1.5
.% 1
t
ng
ng
en
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Global average European Region

Indian Food Processing Industry High Performing companies
High Performing companies from an emerging nation
Source: Primary Survey conducted by Deloitte
Supplier delivery rates in India are significantly low at about 75% which could primarily be due to the
low levels of supplier collaboration
Supplier on-time delivery %
Global Supplier Delivery % Regional On Time Delivery % High Performing On Time Delivery %
100.% 100.% 100.%

90.% 90.% 90.%
80.% 80.% 80.%
% of companies
% of companies
% of companies
70.% 70.% 70.%

60.% 60.% 60.%
50.% 50.% 50.%
40.% 40.% 40.%
30.% 30.% 30.%
20.% 20.% 20.%
10.% 10.% 10.%
.% .% .%
< 68 % 68-75.9 % 75.9-83.9% 83.9-91.8 % > 91.8% < 68 % 68-75.9 % 75.9-83.9% 83.9-91.8 % > 91.8% < 68 % 68-75.9 % 75.9-83.9% 83.9-91.8 % > 91.8%
Number of ontime deliveries/total number of deliveries (in %)

Indian F ood Processing Industry High P erf orming companies
38
The low levels of customer and supplier collaboration results in the organizations being forced to stock
high levels of finished goods and raw materials impacting inventory turns and therefore profitability
Inventory turns
Global turns Regional turns High Performing turns
60.% 60.% 100.%

90.%
50.% 50.% 80.%
% of companies
% of companies
% of companies
40.% 70.%
40.%
60.%
30.% 30.% 50.%
40.%
20.% 20.% 30.%
10.% 20.%
10.%
10.%
.% .% .%
< 6.7 6.7 - 12.5 12.5 - 18.4 18.4 - 24.2 > 24.2 < 6.7 6.7 - 12.5 12.5 - 18.4 18.4 - 24.2 > 24.2 < 6.7 6.7 - 12.5 12.5 - 18.4 18.4 - 24.2 > 24.2
(Annual cost of goods sold) / (average total on hand inventory)

Indian F ood Processing Industry High P erf orming companies
Due to the fragmented nature of the food processing industry in India and there are only a few large
companies, the product range offered by the companies are limited compared to their global peers.
Also, lack of vertical integration limits the expansion capabilities and scale economy
• The product range of Indian companies is relatively less compared to the multina-
tional companies. Global companies like Kraft Foods operate in various segments
whereas Indian companies like Britannia still have a single/few product lines
• Large companies which are vertically integrated increase efficiency and reduce
costs. This also provides them the power to control the market
Global Semi-finished Industrial

Bakery Beverages Dairy / Ice Creams Meat / Fish Prepared Foods / Snacks Edible Oil Sugar and Confectionary
Companies Products
Nestle X XXX XXX XX XX XX
Cargill XXX XX
Kraft foods XX XX XXX X XXX X XX
ADM XXX
Unilever X XX X XX XXX XXX X

Semi-finished Industrial
Indian Companies Bakery Beverages Dairy / Ice Creams Meat / Fish Prepared Foods / Snacks Edible Oil Sugar and Confectionary
Products
GCMMF XXX X
Nestle X XXX XXX XX XX
Hindustan Unilever XX XXX X X X
Britannia XXX X
Tata Tea XXX
Data of some of the top 25 global and Indian food processing companies
X – low presence in the category XXX – high presence in the category
Source: Rabobank, Anecdotal evidences

Consolidation of the industry leading to larger
firms which controlled the value chain and
focus on operational efficiency
Impact of Firm Structure: Example of US Poultry and Meat Industries
1920s – 1980s 1980 – till now
Meat / poultry processing industries were located near Per capita consumption of meat decreased in 1980s
the production centers due to the lack of transportation which meant that sales volume growth could occur if
facilities. only one firm acquired the shares of other firms (Meat
and poultry consumption changed very little over
Government also prevented the major processing 1972-92, rising incrementally from about 168 pounds
companies from engaging in retail sales or use of their per person in 1972 to about 175 pounds in 1992 on a
distribution channels for purposes other than distrib- retail boneless-equivalent basis)
uting their own meat and dairy products.
For firms competing in markets for semi-processed
However, post world war II, reductions in transporta- goods, such as meat packers and processors, this meant
tion costs resulted in large processing firms far from the that plants had to compete on selling prices, putting
production facilities. pressure on their own wage and operating costs.
This encouraged firms to employ larger plants with

more sophisticated equipment designed to handle much
greater throughput, but requiring continuous produc-
tion. In the process, highly competitive meatpacking and
processing industries emerged.
US food industry statistics by company structure, 1997
Ownership Number of Share Number of Share Value of shipments Share (%)

companies (%) employees (%) (US$ billion)
Corporations 15,135 68.9 1,309,912 89.3 378.94 89.9
Sole proprietorships 4,705 21.4 26,499 1.8 3.59 0.9
Partnerships 1,436 6.5 39,145 2.7 9.98 2.4
Other non-corporate forms 682 3.1 91,400 6.2 29.23 6.9
All establishments 21,958 100.0 1,466,956 100.0 421.74 100.0
Source: US bureau of the census, 1997 Census of manufacturers
1972 1977 1982 1987 1992 1997

Meat packing 26 21 29 39 50 57
Poultry processing 17 17 22 29 34 40
Sources: Structural Changes in the Meat, Poultry, Dairy and Grain Processing industries – Micheal Ollinger, Sang.U.
Nguyen, Donald Blayney, Bill Chambers and Ken Nelsen – US Department of Agriculture - 2005
40
Supporting industries

Institutions in Thailand provided all the necessary support for the industry and helped in making it one
of the largest exporter of the processed foods
Organization Roles
Universities like Kasetsart, Majoe • Higher education in the areas of agriculture research and related science
• Agriculture is one of the top 10 fields of research in Thailand
Agriculture Research Development •Providing funds in the areas of Agricultural research

Agency (ARDA)
Laboratory Center for Food and • Directly under the Ministry of Agriculture and Cooperatives
Agricultural Products Co., Ltd (LCFA) • Centralized laboratory facilities service and export reference lab service
• Issues “Health Certificate” under various bodies like Department of
Livestock Development, Fisheries and Agriculture - “One Stop Service”
• Information support for agricultural and food product exporter
National Science and Technology • Funding more than 200 research projects related to plant, animal and
Development Agency / National Center human biotechnology
for Genetic Engineering
Thai Frozen Food Association • Exports Problem Solving Committee ( to solve the quality problems faced
during exports)
• Data and Information Committee ( to provide news and information about
fishery products)
• North America Shrimp Exporters Group ( to negotiate shipping costs with
the liners. The group members enjoy cheaper freight rates)
Sources: Evolution of Agro-biotechnology innovation system in Thailand – Pun-Arj Chairatana

ISI Emerging Markets -Thailand Industry Research– 4Q 2007 report
42
There are numerous institutes providing support for the food and agro processing industry. Institutes
like CFTRI provides technical support whereas APEDA , MPEDA etc promotes export of the products
Organization Roles
Central Food • Research and Development in the areas of food science and technology
Technology • The focus is on developing low-cost technology , utilization of indigenous raw materials, bio-
Research Institute
friendly technology and food safety and nutrition
(CFTRI)
• Linkages with organizations like FAO, UNICEF, World bank etc
• Also provides process engineering and plant design for the entrepreneurs
•Provides more than 300 testing services to facilitate export requirements
• Has more than 200 faculty in various research areas and provides training in the areas of food
technology, biochemistry, microbiology etc
National Dairy • Research in the areas of Dairy Production, Processing, Management and Human Resource
Research Institute Development
• To develop Dairy Farming Systems for different agro-climatic conditions and demonstrate
models for transfer of technology
Indian Council of • ICAR is the apex body for coordinating, guiding and managing research and education in
Agricultural agriculture including horticulture, fisheries and animal sciences in the entire country
Research
• To provide, undertake and promote consultancy services in the fields of education, research,
training and dissemination of information in agriculture, animal husbandry, fisheries, home
science and allied sciences.
Agricultural and • To promote export of agricultural products
Processed Food • Data on international trade of agriculture and processed foods; Importers and Exporters list;
Products Exports
Financial assistance schemes; Food regulation in various countries and provides the list of
Development recognized labs
Authority (APEDA)
Marine Products • To promote the export of marine products, specifying standards, processing, marketing and
Exports training
Development
Authority (MPEDA)
National Institute of • Conducts research on improving the nutrition level of the people especially children and
nutrition women
• Providing Nutritive value of Indian foods,: Energy requirements of various demographic
profiles
Sources: Websites of the organizations, Anecdotal references

Though there are numerous institutions providing support for the food processing industry, there
is very little evidence of coordination between them which results in the lack of synergy for the
promotion of the industry
• Operating under various ministries result in lack of coordination:

• CFTRI is part of Council of Scientific and Industrial Research (CSIR) under the Ministry of Science and Technology,
• National Dairy Research Institute (NDRI) is a deemed university governed by Indian Council of Agricultural
Research (ICAR) which falls under the ambit of Ministry of Agriculture
• National Institute of Nutrition (NIN) is governed by Indian Council of Medical Research (ICMR) which is under
the Ministry of Health.
• Limited interaction with leading global institutes in terms of exchange of faculty / research personnel or
students:
• Interaction with global institutes is important, keeping in view the nascency of the Indian food industry.
• Global institutes work closely with industry compared to Indian institutes, leading to a higher degree of under-
standing of the latest trends in demand for foods and beverages. This allows for greater interaction between
students, research personnel and industry, and leads to a more application-oriented approach.
• Extent of commercialization of indigenously developed products:
• There is limited synergy between academics / teaching and research, leading to lack of adequate industry
interface and also lack of high quality personnel. The low interaction with industry leads to limited focus on
applied research. This in turn leads to low commercialization of indigenously developed technologies.
• Multinational companies typically have an in-house global network of R&D professionals but are willing to
explore working with Indian institutions for developing India-specific products and processes. This provides an
opportunity for the institutions.
• Today, these companies utilize the research institutes primarily for routine testing such as basic product compo-
sition, trace metal analysis, pesticide and antibiotic residue testing etc. In most cases these tests are undertaken
to validate internal research, thus highlighting the restricted usage of these facilities.
Supporting industries /
Institutions
Sources: Rabobank , Websites of the organizations, Anecdotal references
44
Few Examples of the best practices in the linkages of the institutes with the Industry: Consulting
services, technical assistance to the industries and student study tours are some of the best practices
that are followed by institutes in other countries
Organization Areas of focus

Institute • Recruits international experts which helps facilitate international research projects.
Tecnologicoy de • It also participates in research by exploring various aspects of dairy science, from food safety
Estudios Superiores
issues to cross-country comparison of dairy industries through linkages with Babcock Institute for
Monterrey-Campus International Dairy Research and Development, University of Wisconsin Madison, USA
Querétaro (ITESM-
CQ) • Includes student study tours and internships, as well as planned training programs for dairy
cooperatives in Mexico
Center for Advanced • Has a technology extension program, serving as an incubator, wherein direct technical assistance
Food Technology is provided to SMEs in the areas of developmental manufacturing, quality assurance, leasing of
(CAFT), University of space/equipment/personnel and training courses
Rutgers, USA

Government support
46
The Thai government had played a major role in supporting the food processing industry by providing
various incentives for the companies. Government of India has also declared food processing industry
as a sunrise sector due to its potential for growth
Thailand government played a major role in developing • The Indian government is providing various incen-
the food processing industry in the country tives to promote the food processing industry in
the country after liberalization (1991- 1992)
• Food processing sector is treated as a export • A few of the measures are:
oriented industry • FDI up to 100% is permitted under the automatic
• Encouraged high vale added product from local route in the food infrastructure (food park, cold
raw materials aimed at export market chain/warehousing)
• Development of quality control for food products • Automatic approval to FDI up to 100% equity
to ensure safety in both domestic and international in Food Processing Industry excluding alcoholic
markets beverages and a few reserved items
• No industrial license is required for almost all of
Government provided support exclusively for shrimp the food & agro processing industries except for
exports. During the sixth plan(1986-91) it provided some items like: beer, potable alcohol & wines,
more than $ 84 mn to encourage the shrimp culture cane sugar, hydrogenated animal fats & oils etc.
and items reserved for exclusive manufacture in the
The seventh plan (1992-96) promoted the contract small-scale sector.
farming with emphasis on export promotion • Up to a maximum of 24% foreign equity is allowed
in SSI sector
• Creation of zones 1, 2 and 3 ( Bangkok – zone 1; • Income tax rebate allowed (100% of profits for five
and regions closer to it are zone 2 and farther from years and 25% of profits for the next five years)
it are zone 3). for setting up of new agro-processing industries to
• Based on the zones incentives were provided process and package fruits & vegetables
ranging from tax holidays for 8 years and 50% • Fruits & vegetables, and dairy machineries are
for the next 5 years, duty free technology and completely exempt from excise duty. Central excise
raw material imports, exemptions from export, duty on preparation of meat, poultry and fish,
income and sales tax and tax credits for export pectin and yeast is also completely exempt.
performance. • Customs duty on refrigerated goods transport
• Double Deduction on Taxable Income of Water, vehicles has been reduced form 20% to 10%.
Electricity, and Transport Costs for 10 Years from • Excise Duty of 16% on dairy machinery has been
Date of First Sale, 100% Import Duty Exemption fully waived and excise duty on meat, poultry and
on Machinery fish products has been reduced from 16% to 8%.
• Foreign Companies can own Land for Residential
and Business Purposes
Sources: An appropriate manufacturing strategy model for the Thailand’s food processing Industry – 2004
The waning of National Developmentalism and the Political Economy of Agri-business in Siam: Case studies of development
and restructuring in Thailand’s Agri-food sector – Jasper Adam Goss – 2002,
Ministry of Food Processing Industry - India, India’s Processed Food Industry – Way2wealth - 2008

Schemes offered by the ministry of
food processing industries:
Schemes Description
Income Tax Relief •Tax deduction for 100% of profit for five year and 25% of profits for the next five years in
case of new agro-processing industries set up to process, preserve and package fruits and
vegetables.
Excise Tax Relief •Exemption limit of excise duty for Small Scale Industry (SSI) raised from Rs.1 crore to Rs.1.5
crores
•Excise duty on reefer vans (refrigerated motor vehicles) reduced from 16% to 8% and on dairy
machinery has been fully exempt for promotion of dairy processing industries
•Excise duty on condensed milk, ice cream, preparations of meat, fish and poultry, pectins,
pasta and yeast , soya bari (food supplements) and ready to eat packaged foods, on vanaspati
fully exempt.
•Excise duty on ready-to-eat packaged foods and instant food mixes like dosa and idli mixes
reduced from 16 percent to 8 percent.
Customs Duty Relief •Custom duty reduced from 7.5% to 5% on food processing machinery, 20% to 10% on
refrigerated vans, 65% to 50% on sunflower oil (crude), 75% to 60% on sunflower oil (refined)
•Customs duty on packaging machines reduced from 15 percent to 5 percent.
Scheme for Infrastructure •Food Parks, Packaging Centres, Modernizing Abattoirs, Integrated Cold Chain facilities,
Development Irradiation facilities, Value added centers – at an estimated budget of Rs. 2613 Cr
•Scheme for Technology Up-gradation/Establishment/ Modernization of Food Processing
Industries at an outlay of Rs. 600 Cr
Scheme for Quality •Food safety and quality assurance mechanisms, Strengthening Codex cell, Continuous R&D,
Assurance, Codex Setting up/up gradation of quality control laboratories, Promotional activities such as
standards and R&D participation in exhibition/ fairs/supporting seminars/workshops/ studies and surveys, Generic
advertisement, Preparation of short films and publicity material for different events at an
expense of Rs. 250 Cr
Scheme for Human •Setting up of Food Processing Training Centres (FPTCTC), Imparting training to update skills,
Resource Development Entrepreneurship Development Programme (EDP), Facilitating Universities/Institutions for
running degree/diploma courses at an expense of Rs. 65 Cr
Scheme for strengthening •Rs. 325 Cr is allotted for strengthening of institutions, setting up Wine Board and Meat and
of institutions Poultry Processing Board
Sources: Website of Ministry of Food Processing Industries
48
Action plans of department of
animal husbandry, dairying and fisheries
Department Project Description

Animal National Project for • To arrange Artificial Insemination service to the cattle farmers in order to develop
Husbandry Cattle and Buffalo quality cattle
Breeding
•Two phases: Allocation of Rs 402 Cr in the phase 1
Assistance to fodder •25% of the investment needed will be provided

block making units •During 2007-08 (up to 31.12.07) an amount of Rs 21.25 lakhs was released
Grassland development • To improve degraded grasslands and rehabilitation of saline, acidic and heavy soils
(including reserves) through vegetation cover
• A 10 hectare land would be provided and up to a maximum of Rs 10 lakhs for
development
Fodder seed Production •To produce high yielding varieties of fodder.
& Distribution • 75% of the procurement price is provided for the purchase of fodder seeds from
Programme
the farmers
• The state government furnishes a firm commitment for purchase of fodder seeds
from farmers
Biotechnology Research • Research projects in the areas of feed and fodder can be undertaken in
Projects collaboration with research institutes / agricultural universities etc.
•100% central grant is provided by the government
• However, during 2007-08 no funds were released since there were no suitable
projects
Poultry Development • Assistance to state poultry / duck farms with a maximum of Rs. 85 lakhs for each
farm
•During 2007-08, Rs. 14.15 Cr was released and 201 farms were benefitted
Livestock Insurance • 100 selected districts across the country were covered with an approved outlay of
Rs. 120 Cr
•This scheme will also popularize rearing of quality breed of animals
Sources: Department of Animal Husbandry, Dairying and Fisheries

Department Project Description
Dairy Intensive Dairy • Dinput evelopment of milch cattle, increasing milk production by providing
Development Development Program technical services
• 84 projects have been approved in 206 districts with Rs. 480 Cr covering around 15
lakh farmers
• Rs. 30 Cr has been allocated for strengthening infrastructure for quality and clean
milk production
Dairy / Poultry Venture • Assistance is provided in areas of milk processing at the village level, quality up-
Capital Fund gradation and technology
•Rs. 25 Cr has been allotted for the same
Strengthening of • NDDB allocated Rs. 1000 Cr for strengthening of the cooperatives in the areas of
Cooperatives improving infrastructure, productivity enhancement, quality assurance and creation
of national information network
Fisheries Development of Inland • During 2006-07, additional area of 22,984 ha was brought under fish culture and
Fisheries and 37,923 personnel were trained in the improved production practices
Aquaculture
•A sum of Rs. 20 Cr was released during 2006-07
Development of Marine • Subsidies for motorization of traditional crafts, assisting the small scale mechanized
Fisheries, Infrastructure sector by subsidizing the excise duty on fuel
and Post Harvest
• Setting up infrastructure for safe landing, berthing and post harvest operations etc.
Operations
Welfare Programs for • Welfare of Fisherman: Development of model fishermen villages, Group Accident
Fisherman Insurance for Active Fisherman and schemes to provide financial assistance during
lean fishing season
• Fisheries Training and Extension: To provide training to the fishery personnel in
upgrading the skills
Other Schemes • Strengthening of database and information networking
• Assistance to Fisheries Institutes
In addition, various schemes are proposed to the government in the areas of increasing entrepreneurship in poultry farming,
developing small ruminants, piggery, schemes for utilizing fallen animals and carcasses, establishments of rural slaughterhouses,
salvaging and rearing of male buffalo calves etc
Most of the schemes offered by the ministries are aiming to promote entrepreneurship, building economies of scale etc. however,
the effective implementation of these schemes needs to be ensured by the ministries.
Sources: Department of Animal Husbandry, Dairying and Fisheries
50
Indian government has taken a number of steps to promote the exports of the processed foods
Export Promotion: • All profits from export sales are completely free
from corporate taxes. Profits from such exports are
• Food-processing industry is one of the thrust areas also exempt from MAT.
identified for exports. Free Trade Zones (FTZ) and • Setting up of 60 agricultural zones for end-to-end
Export Processing Zones (EPZ) had been set up with development for export of specific product from
all infrastructures. Also, setting up of 100% Export same geographies
Oriented Units (EOU) is encouraged in other areas. • 53 food parks approved to enable small and
They may import free of duty all types of goods, medium food and beverage units to set up and to
including capital goods. use capital intensive common facilities such as cold
• Capital goods, including spares up to 20% of the storage, warehouse, quality control labs, effluent
CIF value of the capital goods may be imported treatment plant, etc.
at a concessional rate of customs duty subject to
certain export obligations under the EPCG scheme.
Export linked duty free imports are also allowed.
• Units in EPZ/FTZ and 100% EOUs can retain 50%
of foreign exchange receipts in foreign currency
accounts. India: Late Start in
• 50% of the production of EPZ/FTZ and 100% EOU
units is saleable in domestic tariff area. Government reforms
Government support
Source: Ministry of Food Processing Industry, India’s Processed Food Industry – Way2wealth - 2008

Key conclusions and
recommendations
52
Factors Impacting Indian Food and Agro Processing Industry
• Presence of various • Availability of natural • Industry is • Rapid urbanization

• Tax holiday for institutions resources highly
new food • One of the top fragmented • Rising per capita
processing units • However, no agricultural producers in income
significant evidence the world • Very low FDI
• Liberalized overall of coordination • However, the processing in food • More than 10%
policy regime among the levels are low processing growth predicted
supporting bodies • High level of wastage sector in India
Factor
conditions
Related and Firm strategy,

supporting structure
industries and rivalry
Government Demand
conditions
Indian Food Processing Industry

Key conclusions
Parameters Importance Thailand India
Factor Conditions Availability of Raw Materials
Structure of the Industry / Vertical

Integration
Demand Conditions and Firm Structure /
Rivalry Access to Foreign Market
Local Market Demand
Direct linkages with Farmers
Supporting Industries Institutional Support
Government Support Tax Policies / Incentives
• Thailand’s factor conditions are better than • Foreign companies played a major role in the
India’s especially in the areas of Yield per hectare. exports of processed food in Thailand. In India,
Contract farming and direct linkages with farmers FDI in food processing sector is very low and
have provided significant advantages to Thailand. Indian industry is predominantly domestic market
Contract farming is still in the nascent stages in oriented. However the government is providing
India. Though many states have amended the support for the industry to cater to the domestic
APMC act, there are only a few successful cases of and international demand
integration with the farmers
54
The following recommendations would help the Ministry of Food Processing Industry to achieve its ambitious targets
for the year 2010 and 2015
Targets for processing levels ( % of total production)

Category 2004 2010 2015
Fruits and Vegetables 1 4 8
Marine Products 11 15 20
Meat 21 28 35
Poultry 6 10 15
• Improve competitiveness of the firms in the sector • Facilitate the formation of co-operatives in fruits
through cluster based initiatives and vegetables which would reduce the wastage
– Promoting a cluster based approach among the levels of the produce and increases the economies
companies. of scale
• Promote Direct linkages with farmers: • Primary processing by the cooperatives should be
• Government should promote contract farming and allowed for preservation of fruits and vegetables
should facilitate direct linkages of companies with • Purchases from co-operatives can be linked to
the farmers. incentives
• Private-Public Partnership in establishing primary • Measures to increase the processed foods exports
processing centers near the production zones from India
• Wastage levels in India are high due to the inef- • Promotion of the implementation of SPS / HACCP
ficiencies in transportation, storage etc. Primary measures to tap foreign markets
processing centers near the harvesting sites will
reduce the wastage levels. It would also facilitate All the above initiatives by the government would
easy storage improve the processing level and reduce the wastage
• Cooperative approach in the fruits and vegetable level of the agricultural produce in India.
processing

Improving cost competitiveness through value chain efficiencies:
Initiative Likely Stakeholders Expected Results

Promoting a cluster based approach Industry associations and export Easy transfer of the best practices
among the companies. promotion councils among the companies which improves
their operational efficiencies, costs and
Organizations can be grouped into small
teams within and across regions collaboration with customers and
suppliers
Ideally, one or two organizations can be
aligned to a cluster in a mature industry
and learn from the leaders in planned
cost declines and efficiencies. These
organizations can then be leaders who
disseminate the learnings to other
members through specific clusters
Implementations of best practices in Operational performance of the
manufacturing technologies (value companies will improve which results
engineering) and manufacturing (lean in better quality and delivery
manufacturing, costing systems etc.)
Promoting visits by leaders of cluster Adoption of best practices from other
organizations to other industries to industries helps in improving
understand management and financial operational and financial efficiency
practices
Efficiency through multiple forms of relevant consolidation in the backward supply chain of processing
companies:
Activity Likely Stakeholders Expected Results

Amendment of APMC act and abolition of Mandi State Governments Corporates can directly purchase from the farmers
tax
Promote Contract farming State Governments, Large Corporates Improvement in quality of the produce. Since
companies provide all the necessary support, the
consistency of the produce is also high. Better
price for the farmers
Direct linkages with the farmers increase the

efficiency of the entire supply chain. Some of the
initiatives like ITC’s e-Choupal have benefitted
both the farming community (by improving the
livelihood) and the company (by the availability of
consistent quality of produce at lower prices)
56
Example – Indian poultry sector
An overview
Poultry is one of the subsectors where contract farming and vertical integration played a major role in
improving the competitiveness
• Poultry meat is the fastest growing animal protein • Regional Demand:

in India. The poultry industry is a Rs. 40,000 crore − Southern region has the highest per capita
industry, providing direct and indirect employment consumption of poultry due to the following
to over 4 million persons reasons (per capita poultry consumption in
• 20 million agricultural farmers are also dependent South India is about 4 kgs, about four times the
for their livelihood on poultry industry, especially national average):
the maize and soya growers, 75% to 80% of the − High incomes and urbanization in the Southern
cost of production in the poultry industry consists parts of India
of agriculture products, like maize and soya − Low poultry prices in South India, due largely
• It has grown at a CAGR of 12% in the last 11 years to the prevalence of poultry integrators in the
and is expected to continue growing at similar region
rates in the near future. − The same are the factors for higher growth in
• With an annual production of over 53,000 million the western markets
eggs, India ranks second in the world in egg − The northern region, where the poultry industry
production. The broiler production is estimated at is not growing as rapidly as in the South or
3,1 million tons of chicken meat and India ranks West, does, however, have areas of high income
3rd in the world. and urbanization, particularly in Delhi, Haryana,
• Organized poultry production stands at around and Punjab, that can support growth in poultry
70% and the unorganized sector is around 30% demand.
− High level of organized players had reduced the − Eastern region with its low income levels and
prices of poultry in the last few years low urbanization seems to offer only limited
potential
Indians still prefer fresh slaughtered poultry compared to chilled / processed poultry. However, the
market for the processed poultry products is increasing, especially in the urban regions
Market Preference:
• The Indian broiler sector operates almost completely as a live-bird market, with poultry retailed as live birds and
slaughtered for customers in retail shops.
• Consumers have more confidence in the quality of fresh poultry meat that is slaughtered in their presence
• Even when refrigeration is available, consumers lack confidence in chilled or frozen meat because of the unreli-
ability of electrical power. The preference for fresh meat also extends to the belief that it is superior in taste and
texture.
• Processed poultry products, including chilled or frozen poultry, as well as further processed items, currently
account for a small share of urban household consumption and a negligible share of rural consumption.
FDI in Poultry sector:

• Only 2 foreign companies are in the segment producing and distributing feeds for the sector. No company is in
the poultry production and distribution

The vertical integration of the companies has resulted in the reduction of prices of the poultry due to
the increase in efficiency in the supply chain and the increase in the technology adoption
Industry Structure: • As integration expanded, some formerly inde-

• Large-scale integrated producers are most pendent hatcheries and feed millers found it
prominent in the southern and western regions. necessary to become integrators themselves or risk
going out of business.
• Most integrated firms also have some presence in
retail marketing Results of the integration:
• Lower average costs of production through
• Smaller, independent, and sometimes partially inte- improved technology and management practices
grated producers account for most poultry produc-
tion in the northern and eastern regions. • Lower retail prices for poultry meat, which has
been a key demand stimulus in the southern and
Role of Integrated Poultry Production: western regions
• Poultry integrators have been expanding most
rapidly in southern India, where, integrators Source: India’s Poultry Sector – Development and Prospects
– USDA, Poultry Sector Snapshot, Annual Report of Venky’s
account for more than 75 percent of production
Hatcheries
and consumption.
• In southern India, the process of integration began

in the mid-1990s and accelerated rapidly as inde-
pendent growers found the guaranteed returns
of contract farming preferable to the vagaries of
market returns
58
Best practices:
Example of US poultry and egg industries
• Vertical coordination refers to the synchronization • Marketing Contracts – Contractor and Producer
of successive stages of production and marketing, agree on delivery schedule , pricing method and
with respect to quantity, quality, and timing of product characteristics
product flows. Methods of vertical coordination • Production Contracts – Contractor engages in
include: many of the producers’ decisions and retains
• Open Production (also referred to as open, or spot, ownership of important production inputs
markets) – A firm does not commit to selling its • Vertical Integration - A single firm controlling the
output before completing its production operations of two or more successive stages of
• Contract Production – production for future production
delivery. There are 2 types of contracts
Control Offered to Contractor / Integrator
Least Most
Open Production Marketing Contract Production Contract Vertical Integration
In the broiler industry, production contracts have been The egg industry also functions in the same manner,
the preferred method of vertical coordination since with grower providing labor and facilities and contractor
1950s. The terms of production contracts will specify providing all the production inputs. The grower is paid a
that the processor will provide the baby chicks, feed, fee based on the number of eggs produced along with
management and veterinarian services. The grower performance incentives
provides the labor and the chicken houses and is paid
for raising the chicks
Poultry and eggs produced under contracts and vertical integration
Percent
100
80
60
40
20
0
1955 65 75 77 94 1955 65 75 77 94
Broilers Eggs
Vertical integration Marketing contracts Production contracts

Efficiency through multiple forms of relevant consolidation in the backward supply chain of processing
companies: ( Fruits, Vegetables)

Creation of primary processing State Governments, Wastage levels would be reduced (Since a lot of
centers near the cultivating zones Companies, CFTRI, wastage happens during transportation, poor
storage etc)
The produce can be stored for prolonged time
period if primary processing is done. In case of low
demands, the produce can be converted to semi-
processed stage and can be stored for catering to
the future demand
These primary processing centers can directly
supply to the large companies there by improving
the quality levels and consistent quality levels
Promotion of Co-operatives in fruits and Vegetable Processing:

Co-operative approach for fruit State Governments, NMCC, Co-operatives ensure that the farmers are
and vegetable processing Companies paid nominal rates for their produce.
Currently farmers are being paid only 35% of
the value of the produce that enter the
factory gate
Hub and Spoke model can be adopted in the
collection of fruits and vegetables from a
location
The co-operatives can also set up the primary
processing centers that process the produce
so that the produce lasts longer
Cold storage facilities can also be started by
co-operatives at a later stage so as to reduce
wastage
The co-operatives can directly link with the
corporates in selling the produce / semi-
processed items so that they can bargain
higher price. The companies also benefits
since they can buy the required product from
a single agency rather than from hundreds of
farmers. Also the quality of the produce will
be consistent
60
The Mandis in every district could be encouraged to form
a cooperative. These cooperatives can aggregate the
produce and sell directly to the companies. They can
establish cold storage facilities and primary processing
centers to reduce wastage. This could also result in
branding of products. Regional specializations can also be
tried out ( E.g. Chilies in Guntur, Mangoes in Salem,
Oranges in Nagpur etc can be branded and sold through
cooperatives)
Benefits obtained from Cooperatives: Netherland’s fruit and vegetable cooperatives
1887 - 1933 1934 – 1970s 1980s – 1990s
Starting of the cooperative Growth of the cooperative Disadvantages of Auction Cooperatives:

movement: movement: • Purchasers had become too large to
First vegetable auction center was In 1934, ‘Auction Law’ was enacted purchase from a single auction center;
established in 1887. Growing dissatis- containing an obligation that farmers they needed to send agents to several
faction among growers with traditional need to sell only through cooperatives. regional auction centers
sales structures that were insufficiently In 1945, there were 162 auction • Retailers requiring large quantities of
equipped to exploit the opportunities of cooperatives in Netherlands, However produce which drives up the price
growing demand in western Europe post 1945 the number of cooperatives • Large retailers demand stable prices
Quality and quantity demanded were started declining due to mergers. which the auction cooperatives could
not fully passed on to growers and The main aim of these cooperatives not guarantee
also, in a timely manner (informa- was to improve the market position of • Increasingly difficult to negotiate with
tion asymmetry between growers and growers vis-a-vis Buyers the producers about special packaging
wholesalers) Other functions of cooperatives: requirements
Logistics services, quality inspection and
classification of the produce, insurance
against buyer defaults

Conclusions from Netherland’s cooperative movement: Cooperatives can be initiated by governments to benefit from
economies of scale and reduce inefficiencies in the supply chain.
Adoption for India: The Mandis in every district could be encouraged to form a cooperative. These cooperatives
can aggregate the produce and sell directly to the companies. They can establish cold storage facilities and primary
processing centers to reduce wastage. This could also result in branding of products. Regional specializations can
also be tried out ( E.g. Chilies in Guntur, Mangoes in Salem, Oranges in Nagpur etc can be branded and sold through
cooperatives)
Merging of all auction cooperatives to form new market

oriented cooperative to benefit from economies of scale
and inter-auction competition
After 1990s All the existing auction cooperatives were merged to

form Voedingstuinbouw Nederland (VTN) and combined
all assets and activities into one central marketing firm
Merger of called ‘The Greenery’.
Auction
Cooperatives The main reason to set up a separate firm to carry out
into a single the commercial activities was to give the management
entity more freedom to operate. The goals of new marketing
cooperative were to reduce costs, increase scale of
Auction operation, enhance market orientation and improve
Cooperatives coordination in the production and distribution chain
in different The greenery had a turnover of more than 1.5bn Euro
areas in 2002 and sold more than half of all the vegetables
produced in Netherlands
New Producer
Organizations
Few large growers and innovative growers (invested in
technology) left the traditional auction cooperatives and
founded new bargaining associations
Between 1993 and 2000 a total of 74 new bargaining

organizations and marketing cooperatives were formed
Most of these new cooperatives have linkages with
foreign growers to meet the seasonal demand of fruits
and vegetables. Some of them have production facilities
abroad (predominantly in Spain) A few of them have
created brands.
62
Critical Success Factors of a Co-operative movement - Lessons from cooperatives in
Netherlands and Canada
Critical Success Factors Description

Structure of the • For large co-ops, concentration on a core set of activities is critical to success
Cooperatives • For smaller co-ops, success is linked to undertaking a set of activities that are
closely linked or are narrowly focused
• Co-ops tend to be more successful if they provide immediate and significant
benefits to their members.
Member commitment •Ability for farmers to share in profits
•Ability to network with other farmers
•Work towards common goal - often economic
Member Heterogeneity • Co-ops are focusing their activities and/or are adopting an umbrella or multiple
string structure (Various regional co-operatives under the same management /
brand)
•Geographical location less important
Member Awareness and •Education about the best practices
Control • The sense of common goals among members (which is influenced by member
heterogeneity)
Innovation • Ability to innovate in the globalized economy ( E.g.. Netherland’s individual
cooperatives merged to form a larger identity to manage the larger retailers)
Source: Canadian Agricultural Co-ops: Critical Success Factors in the 21st Century
Cooperatives for mango processing – A viable option ? Country-wise share in the World Mango Production
Why Mango? India is the largest producer of mango in

the world and produces around 100 lakh tonnes per Others
25.0%
annum from an area of 16 lakh hectares. There is a
huge potential for exports of mango/mango products India
40.0%
Major Mango Production States: Andhra Pradesh,
Gujarat, Bihar, Karnataka, Maharashtra, Tamil Nadu, Indonesia
West Bengal and Uttar Pradesh are the major producers 5.0%
of mango in India Mexico
5.0%
Pakistan
• Andhra Pradesh is the leading producer of
6.0%
mangoes. Krishna is the leading mango producing Thailand
China
district in Andhra Pradesh followed by Chittoor, 6.0%
13.0%
Adilabad, Khamam and Warangal districts and
others.
• Tamil Nadu is another major producer of mangoes

with Krishnagiri, Theni, Vellore and Thiruvallur
districts producing nearly 60% of the mangoes in
Tamil Nadu

Stage 1 Stage 2 Stage 3
Establishment of Establishing similar State Cooperatives can

Cooperatives in two cooperatives in other be linked form a nation-
districts Mango cultivated areas wide mango cooperative
(One in Andhra Pradesh of the state movement
and one in Tamil Nadu) (One in each district)
• APEDA has identified Chitoor-AP and • Cooperatives in a State can be liked • State cooperatives can be merged to
Krishnagiri-TN as potential clusters for with each other form a nation-wide mango coopera-
mangoes • Best performing cooperative can act tive movement
• Primary Processing – to be done by as a leader in disseminating the best • This brings economies of scale and
the cooperatives practices to others market power to the cooperatives
• Contractual agreement with a • Common brand name should be • Cooperatives can tap the value added
processing major ensures quality and adopted products market catering to tastes of
consistency of product beyond price • Cooperatives can start producing various regions in the country
guarantee value added products • Export of the value added products
• Marketing and Brand building should • Cooperatives can start exporting the can be aggressively pursued by the
be focused products cooperatives
• Performance should be monitored
Source: Mango Profile – Safal National Exchange of India Ltd, APEDA
64
Example of a successful co-operative movement in India – Operation Flood
• Milk and Milk Products sector is the second largest After 2002, Private sector investment in the dairy sector
subsector in the food processing industry next to has increased significantly
commodities (pulses and cereals).
• Indian dairy industry is about 16% of the Indian Source: Website of AMUL, UNFAO Presentation on
emerging changes in the Indian Dairy Industry
food industry with an output value of Rs 1179
billion (2004-05)
• India is the largest milk producer in the world
(about 100 million MT) and consists of nearly 1/5th
of the world bovine population
• However, only 15% of the processing takes
place through organized sector and around 20%
through unorganized sector. The remaining milk is
consumed without processing.
• Cows are the source of regular income for the

farmers and milk generates about 1/3rd of the
income for the farmer. Livestock is treated as a
security against poor monsoon (asset to be sold in
times of crisis)
• Dairying is a part of the farming system and the
cows are fed mostly by the residual from crops
• Indian cattle possess very low productivity, around
1000 kg/year(world average 2038 kg/year)
− key factors for low productivity are the presence
of large number of unproductive animals, low
genetic potential, poor nutrition and lack of
services
Emergence of Cooperatives:
• Production of milk stagnated during 1960s which
led to high demand and increase in price of milk &
milk products
• The Operation Flood (OF) programme implemented
by the National Dairy Development Board (NDDB)
from 1970 to 1996 played the key role in bringing
about the transformation in dairy development in
the country.
The operating model of AMUL is as follows:

• decentralized milk production by the small milk
producers
• milk procurement by the village-level dairy coop-
erative societies
• centralized milk processing by the district-level
unions
• marketing of milk and milk products by the state-
level federation

Key issues in the dairy sector
in India
Breeding: • Farmer owns two to four animals on an average

• Only small percent of the cattle is covered by which means low milk generation quantities per
Artificial Insemination Program, and the rest is household
dependent on natural breeding
• Low productivity, large no. of unproductive animals,
• Artificial Insemination Program is well covered in poor genetic resources, low affordability of feed
the areas with good cattle population etc. affects the generation capacity
Feed: • Farmer has low interest in dairying at times when

• Availability, quality and cost of feed is a major issue. crops are good
• Cattle feeds on land which is largely rain-fed or dry • Many areas do not have access to cattle health and
land (70%), low output of dry fodder breeding services
− Lack of availability of land for fodder grass
Credit:
• Subsidized feed is available through co-ops, but • Poor access to institutional credit
quality and affordability are major deterrents
• Credit through informal channel has very high loan
Production: rate, and results in exploitation of farmer
• Dairying is treated as a part of the farming system,
not as an enterprise
66
New age cooperatives –
Mutually aided co-operative societies (MACS)
New age cooperatives were tried out in the state of

Andhra Pradesh during 1998
Emergence of Mutually Aided Co-operative Societies

(MACS)
• Two tier operation (village level and union level)
• No government control in administration
• Democracy at the village and union level
• Freedom in setting prices
• Accountability and ownership at the village/union
level
• Strong governance and internal audit system
The model has been implemented in Andhra Pradesh.

• Collecting milk from 650 villages in the district
• Milk collection is 60,000 liters per day, likely to go
up to 1,00,000 in the coming 2-3 years
However, MACS model is most practiced only in AP, the

other states have yet to implement this model
Source: UNFAO Presentation on emerging changes in the

Indian Dairy Industry

Comparison of Private companies, MACS and state cooperatives: Cooperatives at the village
level(MACS) are providing substantial benefits to the farmers
Private Companies MACS Cooperative State Cooperative

Input Supply No provision for input • Breeding and health services • Limited Breeding and health
supply except for loans tie up with NGO/state dept. services
given to farmers sometimes • Own manufacturing of quality • Feed available at subsidized
feed at subsidized rate rate through village society
• Organized thrift and credit co- • Not much facility for loans
operative for credit for animal • Medicines available at cost,
purchase availability is sometimes a
• Medicines available at problem
cost/Farmer meetings for
extension
Milk Purchase • Done through the agent • Done through Village MACS • Done through village society
from the farmer (governance issue) society (democratic (Society president has a lot of
• Agent decides what price functioning) power)
he will give, usually • Prices declared by the Union, • Prices declared by co-op
competition with agents higher than Co-op pricing (lowest prices)
of other companies • Testing of milk through • No testing, average prices for
• Testing is done in very few electronic milk-o-testers cow and buffalo milk, strong
cases, that is also not dominant people in community
transparent get better prices
Primary • Clean milk practices at • Clean milk practices at village • Limited attention to clean milk
Processing and village level level practices
transportation • Efficient transportation • Efficient transportation • Inefficient transportation
• Good infrastructure for • Has developed a very good • Has not availed of the
bulk coolers/Chillers infrastructure for bulk chillers government funds to develop
this infrastructure
Processing / • ISO certified plant meeting • Good quality products, but no • Quality of products is an issue,
Quality / Variety all quality requirements, certification as yet though has improved
of products • Has a variety of quality • Traditional products • Traditional products
products catering to • Tapping the rural markets as • Tapping only the urban market
children and younger well, through village societies
generation (yoghurt, (small packets, 250 ml)
flavored milk)
• Selling mostly in metros,
market expansion in urban
areas
Source: UNFAO Presentation on emerging changes in the Indian Dairy Industry
68
New age cooperatives use information and extensive marketing of their products. They have
contractual relationship with the farmers and focus on value added products
Traditional Agriculture New Age Agriculture

• Commodities; spot markets • Differentiated products; negotiation, contracts
• Farms carry out many activities • Specialization; separation of production
• Independent product chain stages stages
• Price and production risk • Focus on a system; stages seen as
• Concerns about monopoly pricing interdependent
• Money and assets prime source of control • Relationship risk; food safety and health
• Concerns about access to information
• Information as prime source of control
Traditional Co-operatives New Age Co-operatives

• Sell generic products • Contractual relationship with members
• Multi-purpose co-ops serving diverse members • Greater specialization; focus on niche
• Co-ops concentrated near farm level products
• Major supporters of price supports • Device for farmers to network with rest of
• Investment in physical assets; little investment system
in intellectual capital • Vehicle for farmers to avoid relationship risk
• More attention paid to providing farmers
with information and using the information
farmers possess
Measures to increase the processed foods exports from India:

Promotion of the implementation State Governments, APEDA, Companies in a locality / similar
of SPS / HACCP measures to tap MPEDA, Industry products can be clubbed and assistance
foreign markets Associations, UNIDO and in the implementation of HACCP
companies standards can be provided
Cost of the implementation of the
certification can be subsidized by the
government
Companies which have implemented
HACCP requirements can be provided
incentives / treated as “trusted
suppliers” for export markets

Annexure
Global Manufacturing Benchmarking Survey:
• The Global benchmarking methodology conducted by Deloitte is followed. The GBS questionnaire is
administered to the companies in the food processing industry in India and the response is collected and
analyzed.
• The analysis consists of data from four sets of companies along with the Indian Food Processing Industry
Peer Groups Geography Revenue Industry Sample Size Chart Color
$200 - 600
Global Global Food & Beverages 30
Million
$200 - 600
Europe Europe Food & Beverages 22
Million
All revenue
High Performing Global Food & Beverages 32
ranges
Company from
an Emerging Turkey Food & Beverages 1
Economy
Global peer groups are defined as all respondents within the closest match of industry and revenue range segments
as Indian Food Processing industry. European peer groups are the respondents from Europe in food processing
industry
High Performing peers are selected as the upper quartile of global respondents when ranked by performance in the
survey.
A company from Turkey has also been considered for the analysis
70
Primary Survey
The responses from 12 companies are collected in the primary survey
Sector No. of Annual Revenue No. of

Companies (Rs. Crores) Companies
Dairy / Milk Products 2
<20 2
Meat Processing / 2
Fisheries 21 – 50 2
FMCG / Confectionery 4 51 - 100 3
Agri-Processing 2 101 - 200 3
Ready-to-eat foods 2 >200 2
Region No. of Approximate number of No. of

Companies employees Companies
South 3 <100 3
North 3 101-500 4
West 4 501 – 1000 3

East 2 >1000 2

Business performance
72
Indian companies score higher on customer satisfaction and loyalty whereas the scores for profitability
and ROA are lower than high performing companies in the food sector
Performance against goals
5
4.5
4
3.5
3
2.5
2
1.5
1
rs
th
re
lty
io
RO
de
ha
ow
ya
ct
ol
t s
lo
fa
gr
eh
ke
tis
er
e
ar
m
ar
sa
nu
sh
sto
M
ve
er
to
m
Re
Cu
sto
rn
tu
Cu
Re
Global average
European Region
High Performing companies
More than 60 % of the companies generate 5% or more profits while the profit margins of Indian
companies are less than 5%. This is explained by the various factors ranging from supply chain issues
like lack of collaboration, visibility of the supply chain, implementation of tools and methodologies to
improve efficiencies and, adoption of technology
60%
50%
40%
30%
20%
10%
.%
Negative
(net loss)
Global average
Company from an emerging nation
Indian food processing industry
Peer group distribution of profitability percentage: EBIT (earnings before interest and
taxes) in last fiscal year.

Supply chain priorities
74
Sourcing, Quality and Customer service are the key priorities of Indian companies whereas logistics
and customer service are top priorities for a company in another emerging economy
5
4.5
4
3.5
3
2.5
2
1.5
1
Product Sourcing Manufacturing Manufacturing Customer
innovation Lead time service
Time Quality Manufacturing Logistics Supply

to - market productivity chain
/ cost cost
Global average
European Region Scale
High Performing companies 1 = not important
Company from an emerging nation 5 = highly important
Indian Food Processing I ndustry

Collaboration
76
A few Indian companies collaborate with suppliers on cost reduction and quality improvement.
However, on an overall basis, collaboration with suppliers is significantly low
% with medium to h igh collaboration
100.%
90.%
80.%
70.%
60.%
50.%
40.%
30.%
20.%
10.%
.%
5
4.5
4
3.5
3
2.5
2
1.5
1
Global average
European Region Scale
High Performing companies 1 = not important
5 = highly important

Due to the low collaboration, adherence to the delivery dates by the suppliers is low. While majority
of the global, high performing companies have their suppliers delivering more than 90%, suppliers of
Indian companies adhere to the delivery dates to around 70%
Number of on-time deliveries/total number of deliveries (in %)
Global Supplier Delivery %
100.%
90.%
80.%
70.%
60.%
50.%
40.%
30.%
20.%
10.%
.%
< 68 % 68 -75.9 % 75.9 -83.9 % 83.9 -91.8% > 91.8 %
Regional Supplier Delivery %
100.%
90.%
Global average
80.% European Region
70.% High Performing companies
60.%
50.%
40.%
30.%
20.%
10.%
.%
< 68 % 68 -75.9 % 75.9 -83.9 % 83.9 -91.8% > 91.8 %
High Performing Supplier Delivery %
100.%
90.%
80.%
70.%
60.%
50.%
40.%
30.%
20.%
10.%
.%
< 68 % 68 -75.9 % 75.9 -83.9 % 83.9 -91.8% > 91.8 %
78
Very low levels of involvement is seen in the area of collaboration with the customers. This results in
the poor adherence to the delivery dates by Indian companies.
Customer collaboration and benefits achieved
100.%
90.%
80.%
70.%
60.%
50.%
40.%
30.%
20.%
10.%
.%
Benefits Gained
4.5
3.5
2.5
1.5
Global average Scale

European Region 1 = not important
High Performing companies 3 = moderate benefit
Indian Food Processing Industry 5 = highly important

Due to poor collaboration with the customers and the suppliers, the adherence to the delivery dates by
Indian companies is lower than the global and high performing companies. While majority of global
companies adhere to 98% of the delivery schedules, Indian companies are in the range of 95~96%
Global On Time D elivery
60.%
50.%
40.%
30.%
20.%
10.%
.%
< 93.5 % 93.5 - 95 % 95 -96.6% 96.6 -98.1% > 98.1 %
Regional On Time D elivery
100.%
90.%
80.%
70.% Percentage o f shipments that meet customer
request date (for the different peer g roups).
60.%
50.% Global average
20.%
10.%
.%
< 93.5 % 93.5 - 95 % 95 -96.6% 96.6 -98.1% > 98.1 %
High Performing On T ime Delivery
100.%
90.%
80.%
70.%
60.%
50.%
40.%
30.%
20.%
10.%
.%
< 93.5 % 93.5 - 95 % 95 -96.6% 96.6 -98.1% > 98.1 %
80
Order fill rate is inline with the global and High performing companies. Companies follow their
despatch schedule and ship the items which is required for the shipment. Mixing of orders rarely occur.
Global Order Fill Rate
100.%
90.%
80.%
70.%
60.%
50.%
40.%
30.%
20.%
10.%
.%
< 80 % 80 -85 % 85 -90 % 90 -95 % > 95 %
Regional Order Fill Rate
100.%
90.%
80.%
70.%
Percentage of line items shipped with
60.% the original order (for the different peer groups).
50.% Global average
20.%
10.%
.%
< 80 % 80 -85 % 85 -90 % 90 -95 % > 95 %
High Performing Order Fill Rate
100.%
90.%
80.%
70.%
60.%
50.%
40.%
30.%
20.%
10.%
.%
< 80 % 80 -85 % 85 -90 % 90 -95 % > 95 %

Visibility
82
Internal visibility of Indian companies is on the higher level compared to the visibility of suppliers and
customers. This is primarily due to the lack of collaboration with the suppliers and customers.
4.5
3.5
2.5
1.5
1
Supplier Visibility Internal Visibility Customer Visibility
Delivery Supplier Inventory Product Customer Customer Customer
Capacity forecast retention
dates capacity FG
Supplier Production Product Customer Customer
inventory schedule cost inventory service

European Region 1 = no information available
High Performing companies 3 = some information available
5 = information is readily available

Flexibility
84
Indian companies are quite low in flexibility where rapidly changing product mix, volume and make
or buy decisions are key components. This could be due to the low levels of collaboration with the
suppliers and customers and the poor visibility along the supply chain.
Current Capability
5
4.5
4
3.5
3
Scale
2.5
2
3 = equivalent capability
1.5
5 = strong advantage
1
Product Production Custom Change in Delayed Make/buy Shift manufac.
mix volume orders prod. spec differentiation decisions load
Importance in Next 3 Years
5
4.5
4
3.5
3
2.5 Scale
2 1 = not important
1.5 5 = very important
1
Product Production Custom Change in Delayed Make/buy Shift manufac.
mix volume orders prod. spec differentiation decisions load
Global average
European Region

Product innovation
86
Indian organizations have product innovation as a major priority. However, they do not plan to
improve the time to market capabilities in the same breadth.
Current Capabilities
5
4.5
4
3.5
3
2.5
2
1.5
1
Product innovation Time-to -market
Innovation P riorities
5
4.5
4
3.5
3
2.5
2
1.5
1
Product innovation Time -to -market

European Region 1 = not important
High Performing companies 5 = very important

Currently 20~30% of the revenues are from The time taken to launch a new product by
new products for Indian companies. Only the Indian organizations is about 25 months as
large companies have their development teams against the median value of 8 months. Realising
whereas small and medium scale businesses the goal of revenue from new products would be
do not have a separate R&D team. The R&D difficult if the average product development cycle
spend by Indian companies are quite low. But time is not brought down significantly.
companies have indicated a higher priority for
R&D in the next 3 years Average Product Development Cycle Time
40
Revenue From N ew P roducts 35
30
90.% Months 25
20
80.% 15
70.% 10
60.% 5
0
50.% Global Regional High Performing
40.%
30.% Global average
.% Current Current Company from an emerging nation
3 Year 3 Year Current 3 Year
Revenue Goal Revenue Goal Revenue Goal
Global Regional High Performing
R&D Investments (% o f revenue)
16.%
14.%
12.%
10.%
8.%
6.%
4.%
2.%
.%
Current 3 Year Current 3 Year Current 3 Year
Revenue Goal Revenue Goal Revenue Goal
Global Regional High Performing

88
A very few percentage of companies use cross functional teams and involve customers and suppliers in
developing a new product. However, organizations who have collaborated have achieved benefits.
% with Some to Extensive Implementation
100.% 5
90.% 4.5
80.%
4
70.%
60.% 3.5
50.% 3
40.% 2.5
30.%
2
20.%
10.% 1.5
.% 1
Common Cross Supplier PDM Outsource Common Cross Supplier PDM Outsource
parts functional product software engineering parts functional product software engineering
design teams design design teams design
Program Program
Program Customer Supplier PLC software management Program Customer Supplier PLC software management
methodology collaboration product structure methodology collaboration product structure
design design

European Region
This Indian companies follow the trend that most of the companies have reduced their new product
launch time by 10% over the last 3 years. They are planning to reduce the time-to-market by 10-20%
in the next 3 years
Reduction Achieved in Last 3 Years Reduction Targeted in Next 3 Years
100.% 60.%
90.%
50.%
80.%
70.% 40.%
60.%
50.% 30.%
40.%
20.%
30.%
20.% 10.%
10.%
.% .%
< 10% 10 - 20% 20 - 30% 30 - 40% 40 - 50% >50% < 10% 10 - 20% 20 - 30% 30 - 40% 40 - 50% >50%
Global average
European Region

Operational excellence
90
High performing global companies have a lower frozen time fence which makes the production
process flexible to deal with variability in customer requirements effectively. Indian companies, on
average have about a week as the frozen time
Global Peers
60.%
50.%
40.%
30.%
20.%
10.%
.%
< 2.8 2.8 -5.6 5.6 -8.4 8.4 -11.2 > 11.2
No. of days
Regional Peers
60.%
50.%
40.%
30.% Global average

European Region
10.%
.%
< 2.8 2.8 -5.6 5.6 -8.4 8.4 -11.2 > 11.2
No. of days
High Performing Peers
100.%
90.%
80.%
70.%
60.%
50.%
40.%
30.%
20.%
10.%
.%
< 2.8 2.8 -5.6 5.6 -8.4 8.4 -11.2 > 11.2
No. of days
Scores for Indian companies in the functional areas are lower compared to global companies and
high performing companies. Organizations have indicated the maximum benefits from manufacturing
related initiatives
% with a Some to Major Implementation
100.%
90.%
80.%
70.%
60.%
50.%
40.%
30.%
20.%
10.%
.%
5
4.5
4
3.5
3
2.5
2
1.5
1

European Region
92
In spite of very low levels of supplier on-time delivery, very few organizations have scorecards for
supplier management. Even from an internal perspective, very few organizations have implemented
methodologies like lean manufacturing which improve efficiency of operations.
% with Some to M ajor I mplementation
100.%
90.%
80.%
70.%
60.%
50.%
40.%
30.%
20.%
10.%
.%
5
4.5
4
3.5
3
2.5
2
1.5
1

European Region

Very few companies in India have implemented methodologies and concepts that improve efficiency
such as TPM and warehouse optimization.
% with Some to Major Implementation
100.%
90.%
80.%
70.%
60.%
50.%
40.%
30.%
20.%
10.%
.%
Focused Total prod Theory of Distribution Warehouse Product data
factory maintenance constraints planning optimization mgmt
4.5
3.5
2.5
1.5
1
Focused Total prod Theory of Distribution Warehouse Product data
factory maintenance constraints planning optimization mgmt

European Region
94
Technology penetration in Indian food processing industry is low. Same is the case of best
manufacturing practices. While a majority of global and high performing companies have
implemented ERP / QMS and CRM only a few companies in India have implemented these best
practices / technologies.
% with some to extensive implementation
100.%
90.%
80.%
70.%
60.%
50.%
40.%
30.%
20.%
10.%
.%
5
4.5
4
3.5
3
2.5
2
1.5
1

European Region

Outsourcing the production and logistics are the major practices followed by Indian companies
whereas global companies are reducing the work force and rationalizing their product portfolio
100.%
90.%
80.%
70.%
60.%
50.%
40.%
30.%
20.%
10.%
.%
5
4.5
4
3.5
3
2.5
2
1.5
1

European Region
96
Manufacturing non-conformance rate of Indian companies is quite higher compared to global and high
performing companies indicating the low levels of adoption of modern manufacturing techniques
Global Non -conformance
100.%
90.%
80.%
70.%
60.%
50.%
40.%
30.%
20.%
10.%
.%
< 2 % 2 -4 % 4 -6 % 6 -8 % > 8 %
Regional Non-conformance
100.%
90.%
(Scrap + rework + reject) / production volume.
80.%
70.% Global average
40.% Company from an emerging nation
30.% Indian Food Processing Industry
20.%
10.%
.%
< 2 % 2 -4 % 4 -6 % 6 -8 % > 8 %
High Performing Non-conformance
100.%
90.%
80.%
70.%
60.%
50.%
40.%
30.%
20.%
10.%
.%
< 2 % 2 -4 % 4 -6 % 6 -8 % > 8 %

Very few companies in India have adopted tools for defects and quality management like SPC, TQM
and Six Sigma.
100.%
90.%
80.%
70.%
60.%
50.%
40.%
30.%
20.%
10.%
.%
Design for quality Quality SPC TQM Six Sigma
4.5
3.5
2.5
1.5
1
Design for quality Quality SPC TQM Six Sigma

European Region
98
Inventory turnover of the Indian companies is less than 6.7. For most of the companies it is nearly 4.
This indicates that companies are stocking nearly 3 months of requirement. This could primarily be due
to the low levels of collaboration across the supply chain which reduces visibility and flexibility of the
companies.
Global Turns
60.%
50.%
40.%
30.%
20.%
10.%
.%
< 6.7 6.7 -12.5 12.5 -18.4 18.4 -24.2 > 24.2
Regional Turns
60.%
50.% (Annual cost of goods sold) / (average total on hand inventory)
40.% Global average

20.% Company from an emerging nation
10.% Indian Food Processing Industry
.%
< 6.7 6.7 -12.5 12.5 -18.4 18.4 -24.2 > 24.2
High Performing Turns
100.%
90.%
80.%
70.%
60.%
50.%
40.%
30.%
20.%
10.%
.%
< 6.7 6.7 -12.5 12.5 -18.4 18.4 -24.2 > 24.2

Trends for the future:
According to a Deloitte research on good and beverage industry, some of the future trends that could shape the
sector are as follows:
Some of the trends that would shape the

Explanations
food processing industry in the near future
Quick fix foods Demand for easy to prepare, open and pre-cooked foods
Natural goodness Higher consumption in fresh fruits, vegetables and salads
Premium food products Higher growth in premium beverages like wine, tea, etc.
Farm friendly Increasing demand for organic foods
Flavorizing Demand for international flavors set to rise
Growth in foods which provide value by clubbing health with
Grab and go value foods
convenience
Low fats, transfats, carbs Demand for low fats, calories, Transfats and allergen free foods
Demand for ‘healing’ food products like nutraceutical food
Functional food
products
100
List of abbreviations
APEDA Agricultural and Processed food products

Export Development Authority
APMC Agricultural Produce Marketing Committee
APS Advanced Planning and Scheduling
bn Billion
C.F Contract Farming
C.P Charoen Pokphand
CAGR Compounded Annual Growth Rate
CIF Cost Insurance Freight
Cr. Crore
CRM Customer Relationship Management
EDI Electronic Data Interchange
ERP Enterprise Resource Planning
FAO Food and Agriculture Organization
FDI Foreign Direct Investment
GDP Gross Domestic Product
ha Hectare
HACCP Hazard Analysis and Critical Control Points
M.P Madhya Pradesh
MAT Minimum Alternate Tax
mn Million
MPEDA Marine Products Export Development Authority
PDM Product Data Management
PLM Product Lifecycle Management
QMS Quality Management Systems
R&D Research & Development
ROA Return on Assets
Rs. Indian Rupees
SME Small and Medium Enterprises
SPC Statistical Process Control
SPS Sanitary and Phyto-sanitary measures
TMS Transport Management Systems
TQM Total Quality Management
UHT Ultra High Treated
UNICEF United Nations Children's Fund
US/USA United States of America
USD United States Dollar
WMS Warehouse Management Systems

Contacts
102
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Deloitte Report FoodandAgroProcessing

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Enhancing firm level competitiveness

Objectives and approach

Setting the context

Tracing the evolution of Food processing industry in Thailand and India

Analysis of Indian Food Processing Industry

Key Conclusions and Recommendations

Title of publication Focus area of publication 5

Title of publication Focus area of publication 7

Title of publication Focus area of publication 9

Global Food and Beverage Sector –

Global Food and Beverage Industry

Market Size Growth rate

Primary Processed Products Value Added Products

Milled Grains, Spices Beverages, Ready to

Edible Oil (Depending on processing level)

Fisheries Processed Aquatic Food (Depending on processing level)

• Primary processed products

• Value added products:

Title of publication Focus area of publication 11

Surviving Mass Market Convenience, Quality, High

U.S. spending on food away from home and

Monthly household spending, US$

Food away from home Meats Cereals

Source: U.S. Bureau of Labor Statistics, Consumer Expenditure Survey (2004-05)

Title of publication Focus area of publication 13

Since the growth rate of the market is less companies

13000 Volume increase / Incremental

Sources: Deloitte Research, Grant Thornton report on Food

New customers in the existing

New Product offerings

Volume increase / Incremental

Title of publication Focus area of publication 15

Classification of Indian Food and Agro

Agro & Food Processing Sector

Commodity Fisheries Dairy Meat & Beverages Convenience

Fish Alcohol Ready to

Packaged Bakery and

Tea and Indian Food Industry $ 220 bn

Primary Processed Value Added

Present level of production Post-harvest losses

Processing levels in India

Buffalo meat 21% 21%

Given the level of wastage and the processing levels,

Title of publication Focus area of publication 17

In the early 80s, the share of processed food exports as

The share of processed food exports in total agricultural

Title of publication Focus area of publication 19

Value of processed food exports (in mn USD) (Including

Source: FAO data, Deloitte Research

Pre-1958 1958 – 1970s 1980s – till now

Thailand - Early beginner

Food processing industry in nascent stage Growth of food processing industry

Title of publication Focus area of publication 21

Before 1960s 1960 - 1990 1991 – to date

Restriction on exports: Agricultural goods

Food Processing Industry in nascent stage Growth of Food Processing industry

Title of publication Focus area of publication 23

Porter’s Diamond Framework has been employed to compare the competitiveness

• Associations and Institutions