Feeding India's Flourishing Food Sector

Walk into a fast food franchise such as McDonald's or Pizza Hut in India, and you are likely to consume condiments, tomato paste, and pasta from a company called FieldFresh Foods Pvt. Ltd. A joint venture between the Singapore's Del Monte Pacific Group and India's Bharti Enterprises, it manufactures pastas, pizza, canned fruits, fruit beverages, and condiments such as ketchup and mayonnaise. Del Monte Pacific operates in India with a subsidiary company in the U.S., Del Monte Foods. FieldFresh Foods runs R&D centers and factories in Punjab and Maharashtra, with over 4,000 associate farmers.

Current State

The food processing sector in India accounts for a third of the country's total food market and 10 percent of its GDP. Expected to grow at 8.4 percent a year, the industry will reach $344 billion by 2025. According to Food Processing Minister Harsimrat Kaur Badal, in just the past year, the sector received $421 million in foreign direct investments. The Modi government has hopes that India will soon rise to become the largest food processor in the world.

Companies in India have expanded their facilities and reach to increase processed food production. Take the world's largest basmati rice processing company, REI-Agro Limited, which executes the entire process from drying and de-husking to milling and polishing to packaging and distribution. With a 22 percent market share in Delhi, Gujarat, Tamil Nadu, and Maharashtra and vibrant exports to the U.S., Europe, and Africa, it has ambitions to introduce basmati rice to kitchens worldwide. In western India, Kelkar Canning in Maharashtra converts highly sought-after Ratnagiri Alphonso mangoes to produce canned pulp, puree, and jam. This factory now manufactures Konkan food products and also pickles chili and lime at two tons per hour.

Ruchi Soya Industries Ltd, a top exporter of soy meal extractions processes a quarter of India's soy crop and is also a player in the edible oil industry. In the first of many partnerships, it established a joint venture with Kagome, a Japanese tomato processing company, to introduce processed tomato products to the Indian market. This was followed by agreements with J-Oil Mills and Toyota Tsusho to process and produce "healthy" cooking oils and fats. Last year, Ruchi Soya released Sunrich, its own brand of sunflower oil.

American Players

Three major agricultural multinationals, ADM, Bunge, and Cargill, process foods in India.

Illinois-based Archer Daniels Midland acquired Madhur Agro, Geepee Agri Pvt. Ltd., and Tinna Oils Ltd., expanding Indian oilseed processing capabilities. In India, ADM primarily processes oil seeds including soybean, rapeseed (such as canola), mustard, sunflower, and cotton into crude oils, which is refined into edible oils and sold under Health Fit and Parampara brands.

Missouri-based Bunge expanded distribution reach and increased manufacturing capabilities of Bunge India Pvt. Ltd. through its acquisition of Amrit Banaspati. In addition to its oilseed processing and refining plants, Bunge brands include Merrigold and Gagan.

Based in Minnesota, Cargill acquired the Leonardo olive oil brand from Dalmia Continental Pvt. Ltd. By October this year, Cargill will have an operational corn milling plant near Bangalore to produce glucose, thickeners, and other sweetening ingredients. Cargill India Pvt. Ltd. processes, refines, and markets vegetable oils, fats, and blends, crushing soybean and rapeseed in western and central India before selling them under the Sweekar, Gemini, and Nature Fresh brands, in addition to Leonardo.

Currently, India largest processed food exports include mango pulp, dried and preserved vegetables, lentils, and rice. While export-oriented, India also imports foods such as vegetable and fruit juices, preserved fruits, cereals, dried vegetables, and palm oil.

Future Growth

The most promising food processing sectors today are grain milling and grain-based products, tomato paste, edible oils, and dried and preserved fruits.

India's Department of Industrial Policy and Promotion estimates that there have been $6 billion in foreign investments in India's food processing sector during the last 15 years. The growing number of foreign and domestic investors is due to strong government support. The government allows 100 percentFDI and has offered numerous fiscal incentives such as tax exemptions and reductions. For example, businesses with cold chain facilities or storage warehouses are granted 100 percent exemption from income taxes.

Shifts in consumer behavior also explain the increased investment. Urbanization has led to an influx in nuclear families. This has resulted in a younger population, a larger number of working women, and increased awareness about health. Families are adjusting to changing food consumption patterns with preference for quality convenient foods, while being receptive to foreign flavors and brands.

While the food processing sector is projected to reach sales of $64 billion in 2018, it is still underdeveloped with only 35 percent of total produce processed and the majority of the sector unorganized. Last year, India lost approximately 40 percent of fruit and vegetable produce due to inadequate storage and infrastructure. Backed by government and consumer support, the expanding market is increasingly appealing to investors. The food processing industry, as the sunrise sector in India, will become even more recognized for the potential opportunities it has to offer.