The Food Processing Industry - Essay Example

organic food industry in India Introduction India is considered and ranked as the second largest next to China in producing food and India and India generally has the ability and the potential for being considered as the largest producer in case of the food and the agricultural sector. The food processing industry is being ranked as fifth in terms of the consumption, production, expected growth and the export. The government of India has implemented and formulated various plan and schemes for providing and extending financial assistance and guidance for modernizing and developing the processing units of food, development of the human resources, supporting the research and development and the creation of the development of infrastructure and also the promotional measure that is adopted for encouraging the growth, development and processing of the food sector. The food processing has been considered as the large and the important sector for covering various activities which includes the horticulture, animal husbandry, agriculture, plantation and the fisheries. The government of India and the ministry of food processing has included the following items or the segments that is included in the food processing industry are processing of grain, fisheries, dairy , vegetables and food processing, the consumer foods which mainly comprises of the beverages ,packaged drinking water and foods and the processing of meat and poultry. In recent years it has been observed that India has experienced a substantial modification and development in the consumption, production and trade that is carried out in the Indian agricultural sector. In the year 2000 it has been observed that India has experienced the growth rate in terms of the value that is related to the export of marine products, tea, sugar and rice. India is carrying high value of exports of various traditional commodities which includes coffee, tobacco, sugar and rice. The organized food sector of India constitutes to around 30%. The highest proportion or the share in case of the organized food in India is mainly contributed by the poultry and the meat segment. The macroeconomic environment in case of India provides a wide and diverse area and opportunities towards the growth and development in the industry and this contributes towards the development of the national economy. Analysis of India food retail industry using Porters extended diamond model The food processing industry in India accounts for 32% of the food market in India. The food processing industry in India is one of the largest and is ranked fifth in terms of production, consumption and export. The total estimated value of Indian food industry in 2013 was Rs 247,680 crore. If expressed in dollar terms it comes to about US$ 39.03 billon. The industry is expected to grow at an annual rate of 11% to reach Rs 408,040 crore or US$ 64.31 billion by the year 2018 (Indian business, 2015). The figure below shows the current market size and growth figures of different product segments of the food processing industry. Figure 1Market size and growth rate of various food products (Source: ASA & Associates, 2013) The Indian food industry is estimated at US$ 189 million in 2011. In India however there is a recent shift in the food industry from normal and regular foods top organic foods. The organic food industry is slated to grow at a CAGR of ~45%. The organic food industry is expected to reach US $ 1733 million by 2017 (Market Research, 2013). The growth in organic farming is fuelled by several factors including the fact that organic farming is cheaper than traditional farming, helps the government in reducing subsidy bill, and helps to address the health concerns of educated consumers. The cost of production has come down by 10- 15 % and the rate of return on investment has grown by 10% (The Hindu, 2014). The country has about 4.43 million hectare under the cultivation for organic farming and a total certified production of 171,000 ton. The cost of compliance to the environment standards of non organic food is so high that it is estimated that for a country like Bangladesh would require an investment amounting to 9.4% of earning from annual fish export to set up a HACCP plant and further 1.3% per annum in maintaining it (Delgado, et al, 2003). Major organic products in India are tea, Coffee, spices etc. The following tables show important data regarding organic food markets. Figure 2 Countries and market share of organic food (Source: Yes Bank, 2012) The % share of organic foods in different countries shows that the share of organic foods is highest in case of America with 52.1% market share followed by Europe which has 41.9% market share. Figure 3 Share of organic food market by category (Source: Yes Bank, 2012) Among the different categories of organic foods the fruit and vegetables segment consist of the maximum share at 33% followed by dairy at 17.6%. Next in line are the bread and grains, beverages and meat fish and poultry. Figure 4 Share of export of organic food to continents (Source: Yes Bank, 2012) The major continents to which organic foods are exported are EU with export value of 365 Crores and total export quantity of 30814 MT. This is followed by USA with export value of 115 Crores. The total export amount in quantity to US in MT is 13392. The total export volume to Canada is 15061 MT but the value in crores is 100 crore. Figure 5 Share of organic market by product (Source: Yes Bank, 2012) If the sales of different organic produce are considered, then tea sales highest with total sales figure at 150 Crores. The sales volume is 1500 tons/ Kl. The OIL AND Ghee export comes next with sales value at 50 Crore and the sales volume is 2000 tons/ Kl. Figure 6 Area under organic farming by state (Source: Yes Bank, 2012) If one takes into consideration the areas in different states that are under cultivation for organic firming then the area in cultivation for organic farming in Madhya Pradesh is highest 2866572 Ha. This is followed by Himachal Pradesh in which total area under cultivation is 631902 Ha. Figure 7 Share of export volume or organic foods by product category (Source: Yes Bank, 2012) Among the different product category the oil crops has the highest share with 25.73% and export volume of 17966 MT. This is followed by Cotton and textiles with export volumes of 17363 MT and comprising of 24.86% market share. In recent years the demand for organic foods is growing by leaps and bounds. The latest survey by Assocham that is Associated Chambers of Commerce and industries in India has shown that fueled by the rise in disposable income and increase in health consciousness 62% of the people living in metropolitan cities buy organic vegetables and fruit. This rise in demand characterizes about 95% increase in the last 5 years according to the survey by Assocham. In the survey done by the Assocham for the report they interviewed about 1500 lead retailers in metropolitan cities selling organic and non organic food stuffs. According to the opinion of 1000 retailers of the 1500 retailers interviewed health concern and environmental awareness were the main reasons behind people going in for organic food. Among the consumers of different Cities consuming organic food Mumbai leads the way with 65% of its population feeding on organic food. This is followed by Delhi NCR where 61% of the population feed on organic food. Among the various categories of organic foods that are offered to consumers vegetables are the most widely purchased with 68% of the total share (Sally, 2013). Figure 8: Diamond Model The food sector industry in India can gain competitive advantage in case of its food processing sector by developing and applying the porter’s diamond model. The model consist of the elements such as the factor conditions, firm strategy and rivalry, demand conditions , government and the related and supporting industries. The factor conditions in case of the food industry sector for gaining the competitive advantage can be explained as India is considered and regarded as India has the ability and capability of utilizing effectively and efficiently the cheaper workforce for setting or establishing the large and the low cost production base in case of the domestic as well as for the export markets, diversifying the agricultural climatic conditions and India has been ranked as the second largest in terms of the arable lands when it is measured in terms of million hectares. The element government that is included in the porters diamond model can be explained as in case of India’s five year tax holiday for the food industry sector includes the processing of the fruits and the vegetables together with the other advantages or the benefits that is being provided for getting the resolutions from the government and initiating the growth and development in the food industry sector of India and also liberalizing the overall policy that is involved in the policy regime. The element related and supporting industries included in the model explains and deals with the fact India possess a vast and wide range of base for the raw materials that is suitable and favorable for the food industry sector in India and India has improved and developed the advancement in the technology for supporting and assisting the food sector industry in India. The demand conditions in the model creates high awareness in case of the market and the rapid and the fast urbanization, increasing the per capita income of the economy, increasing the rate of literacy and the changes or the modifications in the pattern of demand and the firm strategy, infrastructure and rivalry can be explained as the increase in the large number of players in the multinational and domestic market and also includes the highly competitive industry (Pawar and Veer, 2013). The approach focuses on the various industries and especially the small scale industries in which the competitive advantages that is gained by the companies is being compared with the productivity and the performance of the other companies in India. The ability or the capacity in gaining the competitive advantage of the company mainly deals with the innovation and up gradation in the industry and the companies. There are large numbers of players in case of the unorganized and the organized sector in case of the India foods industry sector. The organized sector mainly constitutes to around 15% in case of the dairy products and around 48 % in case of the vegetable and the fruits processing. The food industry sector in India mainly comprises or constitutes for the growth and development in large and vast number of multinational corporations that has began to enter into the market in India for leveraging the food sector industry in India (Proff, 2000). The successful players in case of the food sector industry of India in the overseas market comprises of Nestle, Cadbury, Pepsi and Uniliver. These are the main and the important players in the Indian market that face competition against each other in promoting and developing their respective brands. The companies in order to sustain and gain competitive advantage over each other has adopted and implemented various strategies for increasing and maintaining the market share in the food sector industry in India. The strategies that are adopted by the companies mainly include the aggressive campaigning of advertising, expansion of plans and competitive advantage etc (Baroto, 2012). Some of the examples that explains the strategies that is adopted by the companies are in case of Britannia it has been observed that the company has introduced lower price of the biscuit packets for increasing its customer base, Nestle has been involved in continuously launching and introducing new products in the market. Haldiram has adopted the strategy and pricing technique of competitive pricing in which the company has introduced products that is labor intensive in nature in order to cater wide and vast Indian food industry sector. Haldiram has also adopted marketing strategy for promoting its products which includes the TV advertisement (Kim, Nam and Stimpert, 2004). The Agro food tech has also adopted two important strategies for reducing or challenging the threat from the low priced based competition by adopting the process of launching of the refined oil under the name and umbrella of the company Sundrop and then acquiring or possessing a strong and vast presence in case of the vast and the wide market for the edible oils in case of its brands that is low priced and it also adopted the strategy of reengineering the cost of its products in order to lower or reduce its own cost structure that is fixed (Singh and Singla, 2010). Therefore by analyzing the food industry sector of India on the basis of the porters diamond model it has been observed that by adopting and implementing the model India will be able to gain competitive advantage in the retail and food industry. India has the wide potentiality for its growth and development. The competitiveness is also supported and assisted by the Foreign Direct investment in India. Therefore India is capable of getting largest size market, economies of scale and high demand in the market therefore it is suitable for the foreign investors to make an investment in India. 2 key management issues Marketing Organic foods are those which use grown entirely by using natural substances. Use of natural substances by organic foods, means that no artificial fertilizers, chemical or pesticides are used in producing organic food. According to a report released by the confederation of Indian industries the Organic food market in India is slated to grow at the rate of 400% per annum. The US organic food market is estimated at $ 26 billion and for Europe the value is $10 billion. The market for organic product is growing at a tremendous rate and there is an increased demand for organic product. In US and UK the consumers are even ready to spend a premium to have organic food. Among the countries consuming organic products the main is USA. The other countries include Japan, Denmark, Switzerland, Australia, China, France etc. In Countries such as UK, Germany, Canada and Netherlands about 60% of the organic foods consumed are imported. So, Organic food industry presents a good scope for investment in the Indian scenario. Major organic products in India are tea, Coffee, spices etc. Factors like high price expectations, delay in delivery, certification problems and government initiatives are the major impediments to the rapid growth of organic farming. There is a lack of good certification agencies certifying organic products but in order to market organic products effectively good certificates is a must. To help in the trade of organic products, in an attempt to mainly help the producers of organic food from developing countries UN has launched two important technologies. The two tools are Equitool and IROCB (International requirement for organic certification bodies) (ET, 2008). These tools are going to help the organic farmers in mainly conforming to the acceptability norms of different countries and remove confusions regarding standards and certifications regarding organic products in different countries. The rising awareness of health issues among the educated class, rise in disposable income amongst other factors ensures that about 62% of the households in the upper end segment prefer having organic foods. Financial issues The cost of production of organic farming was higher than normal conventional farming. The main hindrance of organic farming is the high cost associated with it. High cost of certification and high cost of technology are the major hindrance from the financial side (IFAD, 2015). The problem is that if a farmer goes in for cultivating foods organically he has to ensure that his produce is free from ignorance pesticides or fertilizers or insecticides not only from his firm but from surrounding farms as well. On order to ensure this he has to take several safety measures such as constructing 20-25 m wind baring high boundary wall around his firm. For a farmer who has been using fertilizers before to cultivate his crops now has to stop cultivation for a period of 4 years before he can start organic farming. However given the higher price of organic variety the cost benefit ratio of organic farming was higher than that of conventional farming. The main problem of organic farmers were initial lower yields, no price incentives, no separate market for organic produce, lack of proper knowledge and high cost of certification (Singh, 2003). However in recent years the government has come up with several initiatives to boost organic produce. Coupled to these initiatives are the benefits that can be accrued by going into organic farming. All of these factors are together fuelling the growth of organic food industry and this growth is likely to continue in future. 2 Marketing strategies On the current scenario the organic food market in India is dominated by organic India with 175 crore market share of a total market size of 1000 Crore. The list of the different competitors in the Indian organic food market and their relative market share is shown in the below figure. Figure 9 Different companies on organic food market and their market share (Source: Malhotra, 2014) The organic food market is growing at a tremendous rate. This growth figure is present despite the fact that organic products are 30-40% costlier than other food varieties. The organic food and the organic food industry is still one of the fastest growing industries in the country. The factors that are fuelling the growth of organic foods in India are higher disposable income levels, higher health consciousness and increased consciousness about the environment. As the income levels of people increase and along with it there is an increase in awareness driven by education people are focusing and more and more on organic foods. The people are purchasing more and more organic foods despite the higher costs due to health concerns. Given the parental concern about the health of their children they are willing to spend more in order to ensure that the child remains healthy. They are willing to spend more to ensure that the children get the good and better food and drinks (Silva, 2009). This rise in demand in the domestic market for organic foods coupled with increased demand in the international market for organic foods is what is driving the organic food market in India. In fact the organic food producers primary focus market in earlier days was international market. However given the strong demand for organic food in the home front many have diverted their attention to the home market and are reaping good benefits. In order to market an organic food venture in India the company has to first of all devices a solid marketing strategy for the new product. It has to be understood that the organic food market in India is still in the new or rather growth phase. So there would be many competitors who would like to enter the market and there are already some established players in the market. The challenge is to break free from the competition and do something that is totally unique or which creates an individual identity of the product in the varied mix of different products (Explorer, 2010). Since it is a new market and the company wants to enter this young and growing market it has to employ penetration strategy. Employing penetration strategy means that the company must do something unique so that the customers are drawn in to buy the organic products from them (Santacoloma, 2012). The company can ensure this by first of all going in for all the certification of its products. The company must ensure certification at the preliminary level before doing anything else as for organic produce people give a lot of value to certification. The strategy may also involve making good tie ups with local retailers who are into selling of organic products giving them a greater margin so that they push sell the product of this new company. Another strategy that the company may follow is to go for low cost of the new products that they produce and attract customers by giving them cost advantage of the organic products that the companies deal with as recommended by porter (B.V. and P. M., 2005). However the disadvantage of following the low cost strategy is that it will be very difficult as a new company to follow this strategy as there would be a cartel of sorts among the existing producers. Conclusion The growth in food producing industry shows that it is one of the fastest growing industries on the Indian context. The organic food market represents one of the fastest growing industries in the food market and the total industry scenario as a whole. The growth drivers in the organic food market is given by the fact that along with a huge market for organic food that is already present in the world market the market in India is also showing tremendous growth potential. The reason for high growth in the Indian market for organic products is fuelled by higher disposable income, higher consciousness and awareness about environmental factors and higher levels of education. The hindrance factors to the growth of the organic products are increase cost in order to accommodate for the environmental issues. Recommendation For entering into the Indian food market it is advisable to open an organic food venture. The reason for this is the high growth opportunity that exists in the market for organic food. In the organic food it is advisable to go for producing tea. The preferred destination for the tea production should be based at Sikkim. This is because there is a huge demand for organic tea that exists in both domestic and international market. Coupled with this is the fact that the Sikkim Government is providing huge incentives to produce organic tea in Sikkim and is promoting the same with great dedication. References India in business. (2015). Food processing. Retrieved from http://indiainbusiness.nic.in/newdesign/index.php?param=industryservices_landing/337/1 ASA & Associates. (2013). A brief report on food processing sector in India. 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(2003): “Marketing of Organic Produce and Minor Forest Produce”, Chairman’s Report on Theme 1 of the 17th Annual Conference of the Indian Society of Agricultural Marketing (ISAM), Indian Journal of Agricultural Marketing, 17(3), Conference Special, pp. 77-83. Santacoloma, P. (2012). Marketing strategies and organizational structures under different organic certification schemes. Retrieved from: http://www.fao.org/docs/eims/upload/233024/marketing-strategies.pdf Read More