India’s Food Vision: The Next Decade Introduction Demand Drivers Key Opportunities Key Challenges The Outlook for Future 73 73 76 77 78 perspective | Volume 04 a quar terly repor t by Vol u me 0 4 / 2 0 1 0 Introduction According to the International Monetary Fund (IMF), India’s economy is projected to grow at 8. 8 percent in 2010 as the demand is estimated to improve on the back of the Government of India’s economic stimulus policies and other contributory factors such as the estimated normal arrival of the monsoon.
Increased supply and stock replenishment and easing of inflationary pressures will mean that the demand for food products would increase.
However, this increased and rejuvenated demand makes it pertinent to align India’s national policy with respect to agriculture and food in order to satisfy the demand arising out of an ever-increasing population that is highly discerning of quality and taste and has little time in a busy lifestyle for traditional cooking techniques. Corporates can look into the relevance and impact of the foregoing factors to their businesses and the kind of offerings that they need to develop in the emerging scenario.
Demand Drivers The key factors that have enormous importance in increasing demand for food and are expected to play a major role in the transformation of the demand are: •Rising population and incomes •Increasing number of nuclear families and working women •Palate and lifestyle changes The above factors are likely to impact demand for food individually as well as in combination, and result in significant changes in not only the demand for food quantitatively but also in terms of where, how, what and when food is consumed.
This is likely to translate to new and unprecedented modes of delivery mechanisms, retailing formats, packaging formulations and a range of convenience and ready-to-eat food products. Rising Population and Incomes India’s population, by the coming decade, is estimated to be 1. 3 billion out of which the predominant numbers – ~60 per cent – are expected to fall in the age group below 40 years, making it a demanding segment to cater to.
In addition, with real per capita incomes likely to nearly double in the next 10 years and more than two-thirds of the current population still just above or below the poverty line, the first category to see increased spending will be food. The increase in population combined with the increase in the disposable income will translate into not only the likely increase in demand in value-added sectors such as meat, dairy, fresh vegetables and fruits but also an accelerated demand for primary food products.
This demand will graduate into an exponential demand for primary commodities, deriving partly from the fact that it takes greater quantities of primary food to get processed and aggregated into a value-added product. On top of this requirement for accelerated Exhibit 1: usage or absorption of primary commodities or Crop Productivity Levels – A Comparison (MT/ha) food conversion from raw to processed form, the Crops India Other Countries consumption demand for basic commodities would Paddy 3. 3 9. 71 also increase with the growing population. Wheat 2. 69 0. 60 0. 25 60. 70 8. 89 5. 14 4. 29 122. 70 The net effect of this would be the combined demand for both primary and value-added food products from the same natural resource region or even smaller in size than it exists today. This necessitates policy making and research efforts towards areas Pulses Edible Oilseeds Sugarcane F&V: Fruits & Vegetables Source: Ministry of Food Processing Industries, Government of India 3 | India’s Food Vision: The Next Decade perspective | Volume 04 a quar terly repor t by Vo l u m e 0 4 / 2 0 1 0 that focus on increasing the productivity of crops, increasing water-usage efficiencies, dryland farming and high yielding yet non-lodging strains of crop varieties. It is important that such initiatives are taken in earnest as the results of research and their application has a similar gestation period.
This also highlights the need to bring about productivity enhancement Exhibit 2: in existing crops and farming situations through Food Processing Levels – A Comparison improvements and, more importantly, application of Food Category India Other Countries the recommended package of agronomic practices F&V 2% USA (65%), Philippines (78%), to attain global benchmark levels (see exhibit 1). China (23%) Similarly, the explosion in the demand for processed food would trigger the requirement to increase the level of processing presently being undertaken in India (see exhibit 2).
The present processing levels are far lower than other countries and the demand for such products is expected to outstrip supply if adequate steps are not taken. Milk Buffalo Meat Poultry Marine 35% 21% 6% 26% 60-75% in developed countries 60-70% in developed countries 60-70% in developed countries 60-70% in developed countries F&V: Fruits & Vegetables Source: Ministry of Food Processing Industries, Government of India This would cause a shift in the nature of the industry – from largely unorganised today to the organised.
The challenge for the industry would be to undertake capacity and skill-building in the food processing sector in order to facilitate not only upgrades in the standards of food production but also to provide employment to the large population of workers engaged with this sector. Increasing Nuclear Families and Working Women Liberalisation of the economy and the incentives to private sector development have led to a rise in new trade formats and increased employment creation.
This has translated into the migration of both the skilled and unskilled workforce from rural areas to major cities resulting in an increasing proportion of nuclear families combined with higher employment possibilities for women. The rural-to-urban migration trend coupled with other factors such as increased exposure to the media and paucity of time has not only led to changes in awareness of gender equality and rights but also changes in the habits of people towards traditional household chores such as grocery-shopping and cooking.
The trend towards preferences for ready to eat or frozen food is bound to intensify with improvements in packaging technology and infrastructure. Exhibit 3: Enrolment of Women in Different Faculties 16 51 44 37 39 40 33 44 37 47 12 35 38 10 8 21 16 22 17 20 6 4 2 Art Science Medicine Agriculture Veterinary Engineering Commerce Sciences & Technology Management 1995-96 2001-01 CAGR Law Education Others 0 CAGR (%) 14 60 50 Women as % of total enrolment 40 30 20 14 10 0 41 17 18 Source: Selected Education Statistics, 2004-05; Ministry of Human Resource Development, 2007; Technopak Analysis
India’s Food Vision: The Next Decade | 74 perspective | Volume 04 a quar terly repor t by Vol u me 0 4 / 2 0 1 0 In 1981, the number of women entering the workforce was estimated to be 20 per cent; this grew to 23 per cent in 1991 and further rose to 26 per cent in 2001. Currently, it is estimated to be around 30–35 percent of the total working population amounting to ~150–170 million women. Indian women are increasingly seeking greater participation in the organised workforce, accounting for 20-25 percent of the total organised workforce of 30-35 million (refer exhibit 3).
A good example is the huge success of instant noodles in India. Popularised by Nestle, the instant, 2-minute noodle carved out an entirely new category and the non-ethnic and quick cooking practice (as opposed to traditional Indian cooking) was welcomed and adopted by the Indian consumer. The emergence of newer categories as well as eating formats such as roadside restaurants, food courts, cafes, kiosks, lounges, etc. are some of the other examples. The new enabler to this change is the Internet, which offers the quickest and easiest channel for routine work such as ordering food and groceries besides other items.
Exhibit 4: Changing Food Habits of the Indian Consumer Types of Changes Become more health conscious now, regarding food consumed Eat more junk food now Eat less often at roadside eating joints or carts Eat more food now Eat out at hotels more often now Eat western cuisine more often now Source: Technopak Healthcare Outlook % 51 15 15 14 5 5 Palate and Lifestyle Changes Rising income and growing urbanisation have contributed to a shift in traditional Indian food habits. Driven by higher disposable incomes, Indians are increasingly travelling within India and globally and are exposed to diverse lifestyles.
This has given birth to a new generation of consumers with a global orientation in food habits. According to a Euromonitor report, it is anticipated that there would be a dramatic rise in the number of Indians travelling abroad – 132 per cent between 2006 and 2011. It is also expected that the total number of outbound travellers is set to reach 16. 3 million in 2011 alone. Exhibit 5: Allocation of Shelf Space to Imported Food Products Locations South India South India Chennai and Bangalore (South India) Bangalore Chennai (South India ) Across India Mumbai NCR-Delhi % 10 12 5 4 40 3 7 25
Retailer Foodworld Nilgiris Vitan ABG-More Nuts n Spices Food Bazaar Reliance Crossroads Source: Industry Sources, Technopak Analysis High-income urban dwellers are seeking variety in their choice of foods and are willing to spend more on international cuisine, including fast food. Indians have become open to experimenting with newer tastes and multiple cuisines have found a way into Indian kitchens, leading to a diversification in the Indian palate (refer exhibit 4). This has created opportunities for imported food products such as pasta, sauces, salad dressings, dairy products such as yoghurt and cheese, etc. refer exhibit 5). Adoption of higher energy density diets, sedentary work and leisure habits coupled with reduced physical activity have resulted in an increase in incidences of non-communicable diseases, thus making consumers aware of the importance of health, food and exercise, and driving the demand for more nutritious and fortified health foods (refer exhibit 6). As a result, Indian consumers have now become more sensitive to the health quotient of food consumed and the market for health and wellness food has been rising.
Exhibit 6: Growing Health-Consciousness % 74 42 28 14 6 12 Measures taken by Indian Consumers Eating right quantities of food Eating less/cutting down on unhealthy food items like fried food, sweet items/sugar, non-vegetarian food Reducing stress in life Taking vitamins, tonics and health supplements Going for preventive health check-up Going for regular exercise like walking, jogging, physical work out, yoga, aerobics, weight training, karate, cycling, swimming, playing sports Source: Technopak Healthcare Outlook 5 | India’s Food Vision: The Next Decade perspective | Volume 04 a quar terly repor t by Vo l u m e 0 4 / 2 0 1 0 Key Opportunities Changes in demand factors have led to product manufacturers and marketer realising the diverse offerings they can make available to the consumer. This has led to not only the emergence of newer categories but also increasing competition among players in existing categories with an emphasis on the creation of hitherto non-existent value spaces and differentiation factors.
While almost all the key categories in the food segment have been influenced, the ones likely to get more influenced would be those that pack in greater value addition or, in other words, a higher concentration of nutrients per unit. This is already being witnessed in products that have fortifications and ‘natural’ ingredients. Growing Importance of the Non-Carbonated Ready-To-Drink Market as a Healthy Option India’s Rs 865 crore non-carbonated ready-to-drink market includes juices, packaged water, sports drinks, blended tea (including iced tea) and coffee and is estimated to be growing at a robust 25 per cent.
Most companies are developing or acquiring healthier non-carbonated beverage brands to have a presence in this segment with the most recent being the MoU (Memorandum of Understanding) signed between Pepsico and Tata Tea for undertaking joint initiatives in the segment. The other area that is gaining increasing popularity is the fortification of water and fresh fruit extracts such as that of coconut water. Coca Cola has invested in Zico Beverages, a California-based company selling coconut water while Pepsico has purchased Brazil’s largest coconut water player, Amacoco.
One more reason for this segment to be promising is that this category gains higher visibility from a wider array of celebrity endorsements on the one hand while involving a large swathe of the farmer population on the other hand, achieving both public and private goals. Given the vast biodiversity present in the country, this segment would be the most promising one in the near future. Nuts and Nut Products as Time-Saving Sources of Nutrition While the category covering the botanical usage of ‘nuts’ might be restrictive, its culinary coverage including almonds, pistachios, hazelnut, peanuts, etc. hows promise given their provision of nutrition in a concentrated form while being flexible in usage as snacks or as all-time meal accompaniments. Given their nutritive and health benefits, it is very likely that these commodities will not only be increasingly used in primary processed forms (such as with basic addition of salts, roasting, etc. ) but also as processed food ingredients in biscuits, chocolates, granola, etc. Given the huge consuming population that is aware of the nutritive benefits from folklore and prefers “quick and nutritious” food, nuts as a category will see a likely increase in consumption in the near future.
It is also expected to boost trade between India and other countries, given the geographical suitability and wide diversity present both in India and abroad. Value-added Milk and Eggs With rising incomes, the consumption of milk and eggs is estimated to increase in graded levels of consumption towards value addition and branding. Interest in the segment is already evident with the organised industry investing heavily in setting up rural networks and factories as well as importing technology to enhance product safety and innovation.
An example of innovation in this segment is the emergence of ‘low fat, high protein’ branded eggs that assure taste without the guilt of having consumed the fat content of the egg. Such innovations are likely to increase in the future and grow the market at an estimated rate of 20 per cent. Similar is the case of value-added milk such as flavoured milk where the market, though nascent, is estimated to grow 15 per cent on the back of high consumer demand for such products. India’s Food Vision: The Next Decade | 76 perspective | Volume 04 a quar terly repor t by Vol u me 0 4 / 2 0 1 0
Organic Foods as a Fashion Statement and a Healthier Alternative Owing to the focus of past decades on achieving food production and ensuring availability, there was high incidence of chemicals usage in agricultural inputs leading to not only deterioration of natural resources but also the prevalence of higher chemical residues in food products. The coming decades would witness a higher degree of emphasis on the demand for low chemical incidence and adoption of good agriculture practices with a concomitant increase in the demand for organically produced food products.
While the western world is already embracing these changes, it is likely to gain acceptance in India in the coming decade. This would also lead to organic food becoming fashionable among the elite and the expatriate population who are very quality conscious in selection of food products. Convenience Foods The frozen food market is expected to evolve further at a CAGR of 45 per cent to reach Rs 12,520 crore by 2014-15 (refer exhibit 8).
Convenience-seeking behaviour accompanied by the desire to experiment with new, exotic cuisines from fine-dining venues to a ‘grab-and-go’ solution from a fast food outlet or even a convenience store have also led to occasions that call for outside food. This has further resulted in a growing number of domestic fast food outlets, home delivery and take-away restaurants, and American restaurant chains, such as KFC, TGIF, Dominos, Pizza, Pizza Hut, McDonald’s and Baskin Robbins, that have opened in the last few years.
Exhibit 7: Comparison in Market for Frozen Food: 2009 vs 2015(P) 2009 Market Size Contribution to the Category % 2 55 24 21 5 66 24 93 100 Market Size Rs crore 570 410 60 100 1190 900 290 10,760 12,520 2015 Contribution to the Category % 5 72 24 21 9 76 24 86 100 Frozen Food Market Retail Organised Stores Non-veg Stores Modern Independent Stores Institutional Food Services Hotels Export Grand Total Source: Technopak Analysis, Rs crore 190 110 40 40 440 290 150 8,040 8,670 Key Challenges
While the above demand factors and ensuing product innovations would pan out in the coming decade, it will remain conditional to a great extent on the changes required at the ground level to facilitate the viability of many of these. A good example is that of frozen food or liquid value-added milk products, which would warrant a continuous cold chain network. Frequent breaks in electricity supply, uneven and nonmotorable roads make the movement of reefer trucks unviable and also present difficulties in reaching the last mile.
Regulations that would bring about quantum changes in the way commodities are bought and sold need to be enabled pan India in order to enable corporate bodies and farmers to transact freely and within a risk-management framework. Examples of such regulations that need reforms include the much touted Agricultural Produce Market Committee (APMC) Act and the Warehousing Act, besides provisions for financial institutions to deal in commodity markets through exchanges. 77 | India’s Food Vision: The Next Decade perspective | Volume 04 a quar terly repor t by Vo l u m e 0 4 / 2 0 1 0
There is a need for a focused intervention in skill building and vocational training across the value chain from the growers and the academia to the processing factories in order to not only absorb the growing population into the increasing demand for labour but also for producing goods in line with the demand from the market. Demand being a function of consumption capacity, it is also important that the macroeconomic policies support buying capacity and encourage increased consumption of and experimentation with innovative food products.
This can be possible only if food inflation is kept under check. The present inflation rate of above 17 per cent will, if it continues, deter buyers from value-added consumption as basic commodities become expensive. This is likely to lead to a contraction in the food basket as well as in a change in its composition. The other impact that arises from the inflationary trend is the difficulty in meeting production increases as the cost of cultivation increases on the back of increases in fuel, power, labour and raw materials.
Even without inflationary concerns, India faces the need to urgently leapfrog productivity through genetic or agronomic methods in major classes of commodities-cereals, oilseeds, pulses to prevent the need for importing these. Added to the above, the country also needs to improve and rejuvenate its agricultural extension programs to keep the farmers’ knowledge in line with the rapid developments in technology in the area of agriculture.
It is imperative that regulatory, infrastructure, breeding and crop productivity enhancements and labour-enablements happen in tandem, as it is the collective force of all these-rather than an isolated factor-that pulls down productivity of the Indian agribusiness and food processing. The Outlook for Future The food industry will need to transform itself towards offering newer products, both in terms of attributes as well as value proposition. While food consumption will represent for many the means of energy intake, it will also serve the needs of status and prestige, functionality and health in an increasingly time-starved life.
Given the increasing accent on health and safe foods, it will become important for the processing industry to produce food products with minimal artificial ingredients while utilising natural resources in a sustainable manner. The role of technology (such as nanotechnology) in bringing food to the consumer’s plate is expected to be enhanced, with technology not only serving the key roles of preservation and the consequent increase in shelf-life of perishables but also in delivering taste in a customised manner to serve the palate and health needs of customers.
Many food companies are now investing in nanotechnology research that could provide us with safer, healthier, more nutritious and tastier food in the future. Food production costs are expected to fall as techniques become more efficient, using less energy, water and chemicals, and producing less waste. Some of the key areas in which this emerging science will play a valuable role include food packaging and food safety, and ‘interactive foods’ such as n ice-cream that has the taste and texture of ice-cream without the use of fat or the use of nanotechnology to produce low-sodium foods that will still taste salty due to interactions with the tongue, and nutrient delivery systems that use nanocapsules to deliver micronutrients, antioxidants or even drugs to specific target areas of the body at designated times. ‘Nanosensors’ could be developed that detect an individual’s personal profile and trigger the release of appropriate molecules from the product.
In this way, foods could be customised according to the specific¬ taste and smell preferences of the consumer, along with their needs related to health status, nutrient deficiencies or allergies. Potential applications include foods that can release an appropriate amount of calcium in consumers with early osteoporosis, or those with ‘smart filters’ that are shaped to trap molecules that might cause an allergic reaction. India’s Food Vision: The Next Decade | 78 perspective | Volume 04 quar terly repor t by Vol u me 0 4 / 2 0 1 0 This is likely to bring about unforeseen developments in the preferences of customers in selecting food brands and the manner in which these would be valued. Concomitant increases will be necessitated in crop production with key emphasis being in the areas of enhancing crop productivity, resource utilisation and yield improvements. A key contribution to this trend is likely to be the role of technology involving genetic manipulation.
The rapid pace of change will require both the public and private entities in the food cycle to acknowledge the need to undertake capacity development and take steps aggressively in that direction. While the burgeoning population will put an increasingly higher pressure on food demand (see exhibit 9), India’s natural biodiversity and diverse agro-climatic situations would be able to provide the needed supplies if the above possibilities are fully exploited. In an increasingly dependent world where corporate entities and farms compete for natural resources, it will become increasingly pertinent or each country to not only safeguard national food security concerns while engaging in world trade but also ensure peak sustainable utilisation of available resources. The role of the government, going forward, is also likely to be increasingly that of a facilitator rather than implementing agency enabling increasing market-led trade and supply chain development. Authors V. Sridhar, Associate Director| sridhar. [email protected] com Nimisha Chhabra, Associate Consultant| nimisha. [email protected] com 79 | India’s Food Vision: The Next Decade
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