The Netherlands is the second largest exporter of agricultural and food products in the world. The processed food sector has grown about 35 per cent over the last 10 years, with investments in research growing 75 per cent. The sector’s share in total production value is 21 per cent making it largest industrial sector in the Netherlands.
In spite of this, the share of Dutch processed food products in total imports in this sector India is limited. Keeping the immense growth potential of the Indian market in mind, the Embassy of the Netherlands commissioned a study of the processed food market in India.
As stated by Mr. Wouter Verhey, agricultural counsellor of the Embassy of the Kingdom of the Netherlands in India, in his Foreword to the report: “Netherlands is the second largest exporter of agricultural and food products in the world. For decades, the Dutch agriculture sector has succeeded in maintaining its lead over international competitors through continual investment in innovation in agri-food value chains. In May 2012 an extensive Indo-Dutch Agriculture Action-plan was signed between the Central Government of India and Government of the Kingdom of the Netherlands. Within this broad agreement, several areas of cooperation in the agriculture/food sector are defined. This study is a tool in implementing the projects being identified in the processing sector under the Action Plan.”
The report was commissioned in order to develop an understanding of India as a market for processed food products and uncover opportunities for Dutch companies. The report provides an overview of the economic growth in India, the consumer base and its key characteristics, the food retail and services environment, market structure of various food product categories, their growth potential and areas of opportunity for imported products within these categories, the regulatory framework governing imports and domestic production and possible routes to the market for the Dutch organisations.
India is the largest democracy on the globe, the second largest country by population, one of the top-10 when measured by the size of its GDP, and one of the fastest growing economies in the world. The ethnic, linguistic and cultural diversity of India’s 29 states and 7 Union Territories makes it more like the diversity of the European Union than like that of any other single nation-state. And yet, in political and legal terms, these diversities are managed within one constitutional framework, which possibly makes India unique among the nations around the world.
India has wide variations in the income and tastes which are important for consumer product companies to understand if they are looking to cater to mainstream meal habits. India is the second largest populated country in the world with almost two third of the population living in the villages. The urban population has dramatically been growing from last two decades. Though average income of the urban is higher than the rural average income but there exists a rural rich section who is consumers of premium branded products.
India with the youngest population in the world and a large urban population in the age group 20-34 years of age has observed changes in the consumption pattern. India has been consuming products from multinationals for several decades now and with the growing young population who is well educated and travelled across the globe; the tastes and the choices have been changing.
The number of middle class households is rising and approaching 30 million households or over 150 million individuals, with increasing numbers of nuclear families and double income households. This also is creating a socio-economic class across the country, especially in the larger cities, which has some commonality in consumption patterns irrespective of the city the family has originated from or is now staying in. This is the group of consumers who are driving the consumption growth of processed and semi-processed food products.
As Mr. Devangshu Dutta, chief executive of Third Eyesight, states in his introduction to the report: “On the demand side, as Indian consumer households and lifestyles change from the traditional joint- family structure, consumers’ needs as well as the means at their disposal have changed dramatically. With nuclear households, less time is available for both shopping as well as preparation, leading consumers to consider a whole range of processed and semi-processed food options. Therefore, both Indian and international companies can be beneficiaries as Indian consumers are “outsourcing” their food preparation and cooking activities. It is also worth mentioning a key advantage of the Indian market: that the already significant base of consumers is also growing rapidly. This is true regardless of whether you are targeting a consumer base of 5 million or 500 million. Companies that work with the consumer sector are as yet at the early stages of an expanding opportunity, as incomes grow and lifestyles change. Therefore, any company looking at addressing the Indian market must view it as a long-term opportunity, rather than a short-term win.”
Some major trends which aid the development of processed, semi-prepared and packaged food options include new consumption occasions, growth in dining out opportunities, the willingness to experiment with unfamiliar cuisines, the growth of convenience options and the need for predictability (quality as well as hygiene).
The evolution of food retail and services is playing a significant role in the growth in consumption of the processed food products.
The retail sector in India comprises of a large majority of traditional retail formats and a small (but growing) slice of modern retail formats. The share of modern retail is estimated to be less than 2 per cent in food and grocery. Both, traditional retail stores as well as modern store formats such as supermarket, hypermarket ad convenience stores chains are growing, and both are platforms for launching and growing processed food products in the Indian market. The Hotels, Restaurant and Catering sector is also a major driver of food processing in the country, due to its need for significant consistency of products, predictability of supplies, and larger-scale requirements.
Although India is an abundant producer of dairy products, meat products, fruits and vegetables and sugar, the value-added processed products in all these categories present a growing market. India is also growing as a market for new products such as breakfast cereals, pasta, infant food, bakery products, foreign liquor and different types of oils and sauces. Many international organisations have engaged with the India market by setting up manufacturing infrastructure here itself and understanding the market in depth. This approach has not only enabled them to offer their international range of products at competitive prices and but also became very powerful brands in India. Others are taking a more cautious, trading-led approach to the market. This report presentsthe opportunities and challenges in 20 selected product sectors, and also an assessment of different routes to market.
Although imports account for a relatively small share of the total consumption of food products, in some products such as dairy like cheese and whey, processed fruits and vegetables especially processed potatoes, poultry and swine meat, beer, infant food and sauces, Netherland occupies an important position as a source of import.
Regulations are an intrinsic part of the food industry anywhere in the world, and India is no different. Due to the stress placed on domestic production, import duties are fairly high for finished products. A specific agency related to Food Safety and Standards has also been established by the government in 2006, which consolidates various acts and orders for food-related issues previously handled by various Ministries and Departments. The report describes some of the key regulatory aspects related to imports and distribution of food products in India.
It is important to note that the government has introduced several schemes favouring domestic production in the food processing sector such as providing financial assistance in the form of grants and subsidies for the setting up and modernization of food processing units, the creation of infrastructure, support for research and development and human resource development as well as other promotional measures to encourage growth within the processed food sector. In order to promote faster establishment of food processing industries in the country, the government provides various tax and other incentives to businesses which have been detailed in the report.
To conclude, the market for processed and semi-processed food products is growing in India, and there is significant opportunity for value-added and differentiated products. We hope this report will present a well-rounded view of the market, and serve as a first step for Dutch organisations to productively engage with the Indian industry and Indian customers.
About Third Eyesight
Third Eyesight is a consulting and management solutions firm focussed on sectors retailer to retail and consumer products. Clients who have benefited from our experience and expertise include retailers, brands and manufacturers, technology suppliers, private equity & venture investors, educational institutions and organisations servicing the consumer products and retail sectors.
Third Eyesight has worked with companies that are market leaders (with sizes up to USD 80 billion in annual sales) to early-stage and start-up businesses, on engagements of strategic significance to the top management.
Strategy and operations support provided by Third Eyesight include: identifying and evaluating new business areas, market and industry research, business strategy and business plan development, development of sales and distribution networks, including support with acquiring key client relationships, business due diligence, partner evaluation, strategic alliances, mergers & acquisitions, sourcing and supply chain strategy, merchandising support, operational audits & assessment and a variety of other operational support.
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