INDUSTRIAL ANALYSIS- FOOD INDUSTRY by JINI.P.V

INDUSTRIAL ANALYSIS- FOOD INDUSTRY

SUBMITTED BY
JINI P V
I SEMESTER MBA






SUBMITTED TO
JAYMOHAN NAIR








INSTITUTE OF COOPERATIVE MANAGEMENT
POOJAPPURA





Abstract

Today the food consumption concept of people is changing as compared to the olden days. These changes helped in the growth of food industry. Earlier it was only a small scale industry. But today food industry has grown as other large scale industries. Now co-operative world has a control over the food industries.
Food industries contribute a considerable part of income to the economy. It also provides employment opportunities. Government has implied so many policies for the food industries to ensure the quality of the foods produced. Today food industries concentrate more on making tasty as well as healthy foods rather than sticking on to junk foods only. Thus food industry is helping to make a healthy world.




CHAPTER 1
1.1 Introduction
The food industry is the complex, global collective of diverse businesses that together supply much of the food energy consumed by the world population. Only subsistence farmers, those who survive on what they grow, can be considered outside of the scope of the modern food industry.
Food industry is not a formally defined term; however, it is usually used in a broadly inclusive way to cover all aspects of food production and sale. The Food Standards Agency, a government body in the UK, describes it thus:
"...the whole food industry – from farming and food production, packaging and distribution, to retail and catering."
The Economic Research Service of the USDA uses the term food system to describe the same thing:
"The U.S. food system is a complex network of farmers and the industries that link to them. Those links include makers of farm equipment and chemicals as well as firms that provide services to agribusinesses, such as providers of transportation and financial services. The system also includes the food marketing industries that link farms to consumers, and which include food and fiber processors, wholesalers, retailers, and foodservice establishments."[2].
The food industry includes:
• Regulation: local, regional, national and international rules and regulations for food production and sale, including food quality and food safety, and industry lobbying activities
• Education: academic, vocational, consultancy
• Research and development: food technology
• Financial services insurance, credit
• Manufacturing: agrichemicals, seed, farm machinery and supplies, agricultural construction, etc.
• Agriculture: raising of crops and livestock, seafood
• Food processing: preparation of fresh products for market, manufacture of prepared food products
• Marketing: promotion of generic products (e.g. milk board), new products, public opinion, through advertising, packaging, public relations, etc
• Wholesale and distribution: warehousing, transportation, logistics
• Retail: supermarket chains and independent food stores, direct-to-consumer, restaurant, food services

1.2 Overview
1.2.1 Industry size
Processed food sales worldwide are approximately US$3.2 trillion (2004).In the U.S., consumers spend approximately US$1 trillion annually on food, or nearly 10 percent of the Gross Domestic Product (GDP). Over 16.5 million people are employed in the food industry.
1.2.2 Agriculture
Agriculture is the process of producing food, feed, fiber and other desired products by the cultivation of certain plants and the raising of domesticated animals (livestock). The practice of agriculture is also known as "farming", while scientists, inventors and others devoted to improving farming methods and implements are also said to be engaged in agriculture. More people in the world are involved in agriculture as their primary economic activity than in any other, yet it only accounts for four percent of the world's GDP.
1.2.3 Food processing
Food processing is the methods and techniques used to transform raw ingredients into food for human consumption. Food processing takes clean, harvested or slaughtered and butchered components and uses them to produce marketable food products. There are several different ways in which food can be produced.
 One Off Production This method is used when customers make an order for something to be made to their own specifications, for example a wedding cake. The making of One Off Products could take days depending on how intricate the design is and also the ability of the chef making the product.
 Batch Production This method is used when the size of the market for a product is not clear, and where there is a range within a product line. A certain number of the same goods will be produced to make up a batch or run, for example at Gregg’s Bakery they will bake a certain number of chicken bakes. This method involves estimating the amount of customers that will want to buy that product.
 Mass production This method is used when there is a mass market for a large number of identical products, for example, chocolate bars, ready meals and canned food. The product passes from one stage of production to another along a production line.
 Just In Time This method of production is mainly used in sandwich bars such as Subway, it is when all the components of the product are there and the customer chooses what they want in their product and it is made for them fresh in front of them.
1.2.4 Wholesale and distribution
A vast global transportation network is required by the food industry in order to connect its numerous parts. These include suppliers, manufacturers, warehousing, retailers and the end consumers. There are also those companies that, during the food processing process, add vitamins, minerals, and other necessary requirements usually lost during preparation. Wholesale markets for fresh food products have tended to decline in importance in OECD countries as well as in Latin America and some Asian countries as a result of the growth of supermarkets, which procure directly from farmers or through preferred suppliers, rather than going through markets.
The constant and uninterrupted flow of product from distribution centers to store locations is a critical link in food industry operations. Distribution centers run more efficiently, throughput can be increased, costs can be lowered, and manpower better utilized if the proper steps are taken when setting up a material handling system in a warehouse.
1.2.5 Retail
With populations around the world concentrating in urban areas,food buying is increasingly removed from all aspects food production. This is a relatively recent development, taking place mainly over the last 50 years. The supermarket is a defining retail element of the food industry, where tens of thousands of products are gathered in one location, in continuous, year-round supply.
Food preparation is another area where change in recent decades has been dramatic. Today, two food industry sectors are in apparent competition for the retail food dollar. The grocery industry sells fresh and largely raw products for consumers to use as ingredients in home cooking. The food service industry offers prepared food, either as finished products, or as partially prepared components for final "assembly".
1.2.6 Food industry technologies
Sophisticated technologies define modern food production. They include many areas. Agricultural machinery, originally led by the tractor, has practically eliminated human labor in many areas of production. Biotechnology is driving much change, in areas as diverse as agrochemicals, plant breeding and food processing. Many other areas of technology are also involved, to the point where it is hard to find an area that does not have a direct impact on the food industry. Computer technology is also a central force, with computer networks and specialized software providing the support infrastructure to allow global movement of the myriad components involved.
1.2.7 Marketing
As consumers grow increasingly removed from food production, the role of product creation, advertising, publicity become the primary vehicles for information about food. With processed food as the dominant category, marketers have almost infinite possibilities in product creation.
1.2.8 Labour and education
Until the last 100 years, agriculture was labor intensive. Farming was a common occupation. Food production flowed from millions of farms. Farmers, largely trained from generation to generation, carried on the family business. That situation has changed dramatically. In North America, over 50% of the populations were farm families only a few decades ago; now, that figure is around 1-2%, and some 80% of the population lives in cities. The food industry as a complex whole requires an incredibly wide range of skills. Several hundred occupation types exist within the food industry.
1.2.9 Research and development
Research in agricultural and food processing technologies happens in great part in university research environments. Projects are often funded by companies from the food industry. There is therefore a direct relationship between the academic and commercial sectors, as far as scientific research.

















CHAPTER 2
2.1 Prominent Food Companies
• Nestlé is the world's largest food and beverage company. Kraft Foods is the largest U.S. based food and beverage company. Unilever is an Anglo-Dutch company that owns many of the world's consumer product brands in foods and beverages.
• DuPont and Monsanto Company are the leading producers of pesticide, seeds, and other farming products.
• Both Archer Daniels Midland and Cargill process grain into animal feed and a diverse group of products. ADM also provides agricultural storage and transportation services, while Cargill operates a finance wing.
• Bunge is a global soybean exporter and is also involved in food processing, grain trading, and fertilizer.
• Dole Food Company is the world's largest fruit company. Chiquita Brands International, another US based fruit company, is the leading distributor of bananas in the United States. Sunkist Growers, Incorporated is a U.S. based grower’s cooperative.
• Tyson Foods is the world’s largest processor and marketer of chicken and the largest beef exporter from the United States. Smithfield Foods is the world's largest pork processor and hog producer.
• Sysco Corporation, mainly catering to North America and Canada, is one of the world's largest food distributors.
2.2 Australia – A Major Player in Food Industry
Australia’s food industry encompasses a wide range of products. Although predominantly arid, Australia has a range of climates and land types. These include northern tropical areas, high-rainfall coastal regions, arid and semi-arid climates, most of which are used for food production. This variety, combined with cutting edge technology, makes Australia a reliable long-term supplier to global markets.
The first food processing industries to appear were the farmhouse and village technologies of milling and baking, brewing, salting, and butter and cheese making.
2.2.1 Food Industry Today
Today the food industry is a vital component of the Australian economy. Food accounts for 46 per cent of all retailing turnover in Australia, with total food and liquor retail spending in 2006–07 rising to $106.6 billion, an 8 per cent increase from the previous year.
The industry makes a significant contribution to the economies of regional areas through employment, business and service opportunities. There were around 191 400 people employed in food and beverage manufacturing in Australia in 2006–07. Many new industries were established in the late 1980s and 1990s to take advantage of emerging market opportunities.
2.2.2 Food Trade
Australia has a worldwide reputation for producing superior quality, premium food. Australian food producers are committed to providing the highest international standards of quality management and food safety.
Australia’s major markets for exports are Japan and the United States, making up 20 per cent and 13 per cent respectively. Since 1990–91, there has also been an increased share of exports going to Indonesia (from 2 per cent in 1990–91 to 7 per cent in 2006–07), the Republic of Korea (4 per cent to 8 per cent), New Zealand and the United Kingdom (both 2 per cent to 5 per cent). Australia has benefited from its capacity to supply high-quality food products to Pacific Rim countries and to more distant markets such as Saudi Arabia and the United Arab Emirates.

2.3 Food Industry in India
2.3.1 Market size
The Indian food market is estimated at over US$ 182 billion, and accounts for about two thirds of the total Indian retail market. Further, according to consultancy firm McKinsey & Co, the retail food sector in India is likely to grow from around US$ 70 billion in 2008 to US$ 150 billion by 2025, accounting for a large chunk of the world food industry, which would grow to US$ 400 billion from US$ 175 billion by 2025.
2.3.2 Spices
Despite a global slowdown, Indian spice exports are growing. During April-February 2008-09, India exported spices and spice products valued at US$ 1.02 billion. In 2007-08, India exported 444,250 tonne of spices and spice products valued at US$ 1.10 billion.
2.3.3 Food Processing
The food processing industry is presently growing at 14 per cent against 6-7 per cent growth in 2003-04. The industry received foreign direct investments (FDI) totalling US$ 143.80 million in 2007-08 against US$ 5.70 million in the previous fiscal. The cumulative FDI received by the industry from April 2000-January 2009 stood at US$ 760.32 million.
However, India’s share in exports of processed food in global trade is only 1.5 per cent; whereas the size of the global processed-food market is estimated at US$ 3.2 trillion and nearly 80 per cent of agricultural products in the developed countries get processed and packaged.
India has set itself a target of doubling its processed food production by 2015, and will set up 10 food technology parks during the next year with a view to achieving this.
The first mega food park in western India under the Ministry of Food Processing Industries Mega Food Park scheme in the 11th Plan was launched at Shirwal near Pune.
2.3.4 Snacks and Confectionery
The Indian market holds enormous growth potential for snack food, which is estimated to be worth US$ 3 billion. The market is clearly and equally divided into the organised and unorganised sector. The organised sector of the snack food market is growing at 15-20 per cent a year while the growth rate of the US$ 1.56 billion unorganised sector is 7-8 per cent.
2.3.5 Dairy
According to Dairy India 2007 estimates, the current size of the Indian dairy sector is US$ 62.67 billion and has been growing at a rate of 5 per cent a year. The dairy exports in 2007–08 rose to US$ 210.5 million against US$ 113.57 last fiscal, whereas the domestic dairy sector is slated to cross US$ 108 billion in revenues by 2011.
2.3.6 Beverages
According to industry experts, the market for carbonated drinks in India is worth US$ 1.5 billion while the juice and juice-based drinks market accounts for US$ 0.25 billion. Growing at a rate of 25 per cent, the fruit-drinks category is one of the fastest growing in the beverages market. Sports and energy drinks, which currently have a low penetration in the Indian market, have sufficient potential to grow.
The market for alcoholic beverages has been growing consistently. 'The Future of Wine', a report on the state of the wine industry over 50 years, suggests that the market for wine in India was growing at over 25 per cent per year.
2.3.7 Retail Landscape: Food Chains and Restaurants
The food and grocery market in India is the sixth largest in the world. Food and grocery retail contributes to 70 per cent of the total retail sales. According to industry estimates, the segment is growing at a rate of 104 per cent and is expected to grow to US$ 482 billion by 2020.
According to a BMI forecast, India is likely to see a huge 443 per cent increase in mass grocery retail (MGR) sales during the 2007-2012 period.
Ninety nine per cent of this segment is unorganised, and therefore, there is immense
scope for growth for the organised sector. The organised food retail sector is largely dominated by restaurants, fast food outlets, coffee joints and the like.
2.3.8 Major investments
Private investment has been one of the key drivers for growth of the Indian food industry. The 'India Food Report 2008', reveals that the total amount of investments in the food processing sector in the pipeline for the next three years is about US$ 23 billion.
• The government has received around 40 expressions of interest (EoI) for the setting up of 10 MFPs with an investment of US$ 514.37 million.
• Adani Wilmar, the owner of Fortune edible oil brand, is eyeing acquisitions of greenfield and brownfield assets for sunflower, soya and mustard oil projects. It plans to invest close to US$ 199 million in these projects over the next year.
• Reliance Industries Ltd has invested US$ 1.25 billion in a dairy project.
• Britannia Industries Ltd has signed an agreement with Fonterra Brands (Mauritius Holding) to acquire Fonterra's 49 per cent equity and preference shareholding in Britannia New Zealand Foods, their dairy joint venture.
2.3.9 Government Initiatives
The new trade policy places increased focus on agro-based industries.
• Food processing industries have been put in the list of priority sectors for bank lending.
• Fruit and vegetable processing units have been completely exempted from paying excise duty.
• Automatic approval for foreign equity up to 100 per cent is permitted for most of the processed food items.
• Items like fruits and vegetables products, condensed milk, ice cream, meat production have been completely exempted from Central Excise Duty.
• Excise duty on ready to eat packaged foods and instant food mixes has been brought down to 8 per cent from 16 per cent.
• Excise duty on aerated drinks has been reduced to 16 per cent from 24 per cent.
2.3.10 Looking ahead
According to the India Food and Drink Report Q3 2008 by research analysis firm Research and Markets, by 2012, India’s processed food output is likely to grow by 44.2 per cent to touch US$ 90.1 billion, while packaged food sales will increase by 67.5 per cent to reach US$ 21.7 billion. On a per capita basis, per capita packaged food spending is expected to grow by 56.5 per cent to US$ 18.06 by 2012.
Exchange rate used:
1 USD = 50.43 INR (as on March 2009)

2.4 Leading Players in Indian Food Industry
Agro Foods Pvt Ltd HLL Ltd Parle Products Pvt Ltd
Britannia Industries Ltd Haldiram Pvt Ltd PepsiCo Inc
Dabur India Ltd (Foods) ITC Ltd General Mills-Pillsbury
Dynamix Dairy Ind Ltd MTR Foods Ltd Surya Foods and Agro Pvt Ltd
Gits Food Products Pvt Ltd Nestle Ltd Tata Chemicals Ltd
Godrej Industries Ltd-Foods Division Parle Agro Pvt Ltd

2.5 Growth in Indian Food Industry
• The Ministry of Food Processing estimates the size of the Food Processing Industry at Rs3,150bn (US$70bn), including Rs990bn (US$22bn) of value added products.
• The Food Processing Industry is estimated to grow at 9-12%, on the basis of an estimated GDP growth rate of 6-8%, during the tenth plan period.
• Value addition of food products is expected to increased from the current 8% to 35% by the end of 2025. Fruit & vegetable processing which is currently around 2% of total production will increase to 10% by 2010 and to 25% by 2025.
• The industry employs 1.6mn workers directly. The number of people employed by the industry is projected to grow to 37mn direct and indirect job workers by 2025.
• The total exports of the Food Processing Industry in 2001-02 were Rs136bn and the target exports for 2002-03 was at Rs146bn. Marine products export was the single largest constituent of the total exports of processed foods contributing over 40% of total processed food exports.
• Five-year tax holiday for new food processing units in fruits and vegetable processing along with other benefits in Budget 2004-05 has bolstered the Government’s resolution of encouraging growth in this sector.
• India is the largest producer of milk in the world with an estimated production of 91mn tons in the year 2002-03. Milk and milk products account for a significant 17% of India’s total expenditure on food and the popular milk products are cheese, butter, ghee, dairy whiteners and ice-creams.
• The Indian snack food market comprising bakery products, ready to eat mixes, curries, chips, namkeens and other processed foods is large, diverse and dominated by the unorganized sector.
• The total size of the Indian snack food market is at an estimated over 400,000 tons in volume terms and Rs100bn in value terms and is growing at over 10% for the last three years (2000-2003). The three largest consumed categories of packaged foods are packed tea, biscuits and soft drinks.
2.6 Major Drawbacks
 Adulteration is one of the major causes which affect the quality of the food production industry.
 The cultivation rate is gradually decreasing because of the fast industrialisation and the increase in population.
 The usage of fertilizers is a major drawback of the food industry since it is causing major health problems.
 Junk foods are major contributors of food industry. But these remain hazardous to our health.
2.7 Scope and Opportunities
• Career opportunities in government sectors like Food and Drug administration, Food Corporation etc.
• Techno commercial opportunities in private & govt. sectors.
• Bright career opportunities in Private sectors in departments Like Manufacturing, Quality Control, Packaging & Transport Research & Development
• Job Potential – Middle & Top Level positions in industries as:
o Production Managers
o Marketing Managers
o Legal Advisors
o MIS Experts
o Technical Experts, etc.
• Bright career opportunities in MNC’s like:
o Nestle
o Coca Cola
o Reliance fresh
o Britannia
o Godrej Foods
o Pepsico
o Mahindra & Mahindra
o Pepsi
o HLL
o Thapar Group
• Besides above various opportunities for post graduate education in the United States of America.
• Opportunity as a researcher in the organizations like
o Central Food Technological Research Institute (CFTRI) Mysore,
o Defence Food Research Lab (DFRL) Mysore,
o National Institute of Nutrition (NIN) Hyderabad.
• Vast scope to start own Food Processing Unit. Ministry of Food Processing. (Govt. of India) and State Govt. of Maharashtra have given much emphasis on food processing sector and provided the subsidies upto 50% of the total investment for new Food Processing Units.
o Defence Food Research Lab (DFRL) Mysore,
o National Institute of Nutrition (NIN) Hyderabad.
• Vast scope to start own Food Processing Unit. Ministry of Food Processing. (Govt. of India) and State Govt. of Maharashtra have given much emphasis on food processing sector and provided the subsidies upto 50% of the total investment for new Food Processing Units.
2.8 Latest Trends
Here are the top 10 trends:
1. Quick Fix: People want to eat at home: 77% of all dinners in 2004 were eaten there, but people want less hassle in the kitchen. Easy to prepare and ready to eat are key ingredients for most of us. We should expect to see more ultra-quick foods, bagged salads and side dishes.
2. Drive-and Go: More of us are ordering take-out from full-service restaurants like Applebee’s. Take-out sales from these restaurants account for almost 10% of sales. More than half of Americans eat this way during the week.
3. Inherently Healthy: Consumers are increasingly choosing naturally healthy foods such as fruit, vegetables, salads, nuts and yogurt. Fruit is now America’s second-favourite snack.
4. Fancy: People are choosing premium, gourmet foods. Fish, in particular, is undergoing something of a gourmet makeover.
5. Farm-Friendly: Organic and natural are hot, so is fair trade. Expect cocoa to follow on the heels of coffee and tea.
6. Layering of Flavours: Flavoured oils and vinegars, pairings of fruity and tangy flavours, Asian, Central American and Latin American flavours are in vogue.
7. Grazing: Healthier snacks in vending machines, single-serving snacks, nutrition bars, diet bars, energy drinks and mineral waters are “in.”
8. Low, No, and Less: Low fat trumps low carb in what people seek in labels. Trans fats are on their way out. Demand for low calorie and light products will continue to grow. Watch for allergen-free claims on food labels.
9. Doctoring Through Diet: Nearly two-thirds of shoppers tried to manage or treat a condition through diet. 72% of this effort addressed heart health. Next to low fat, whole grains were the most influential food label claim, influencing 62% of shoppers. Dairy products with cholesterol-lowering sterols, antioxidant-rich chocolate are making an appearance. Expect more functional foods to appear.
10. Global Gangbusters: Many of the same issues affecting Americans affect overseas, too. Health and convenience loom just as large.



These trends are promising, so long as the food industry remains willing to offer convenience without compromising on the demand for healthier food. Fads will come and go, and the government will continue to scrutinize health claims made by food manufacturers. The ageing of baby boomers is driving the food industry in a new direction, one that could have a significant impact on the future health of the population. And that can only be a good thing.
The latest trend is on how to make foods healthy i.e. food containing low fats but containing nutrition, organic foods, and of course the "service" factor does not go out irrespective of the changing trends.




















CHAPTER 3
Conclusion
The world population is increasing at a faster rate which in turn increases the demand for food industry both negatively and positively. When the population increases the demand for food materials also increases, as by the food industry also develops. But at the same time if the demand keeps on increasing it can lead to a situation where the food industries may not be able to meet the needs of the people.
In order to overcome the latter situation the food industries would have to favourable measures.