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`Improved retailing vital for food processing sector'

Our Bureau

Chennai , Nov. 14

A REPORT on the Indian food processing sector says that improved retailing holds one of the keys to exploding the food and beverages market in the coming years. This includes the entry of modern format as well as improved servicing of traditional stores.

The report — India's changing dinner plant: Foods and beverages -challenges and opportunities in the Indian market — says that reforms have been slow, and modern format stores still account for only three per cent of the overall fast moving consumer goods (FMCG) market.

However, whenever modern format has made an appearance, there has been an upward movement in convenience and impulse foods as well as branded commodities.

This CII-AC Nielsen ORG-MARG report was released by the Union Minister of State for Food Processing Industries, Mr Subodh Kant Sahai, at the inauguration of a two-day conference on the food processing sector — Foodpro — organised by the Confederation of Indian Industry.

According to the report, retail reforms breathe new life into production and distribution systems with retail majors taking the initiative to integrate the supply chain and improve cost/benefit ratios at the production as well as consumer end.

Improved distribution and retail visibility has been responsible for some of the biggest success stories in foods last year, it says and adds that a continued and improved focus is necessary on this aspect.

The report says that supply chain inadequacies continue to plague the food processing industry.

The problems spring from a combination of factors: the regulatory environment, lack of investments in developing infrastructure, a back-end that is isolated from the market and high fixed costs. The report calls for a Government and industry effort to shape the regulatory environment to create market-driven linkages across the chain.

Total spending on food, beverages and tobacco rose at an estimated annual average rate of 6.1 per cent in 2000-04 in rupee terms. It is expected that the growth rate will rise to around 9 per cent during 2005-09, according to the report. This estimate is based on forecast levels of private consumption, household size and levels of urbanisation.

The report says that like most other consumer sectors in India, food and beverage producers are benefiting from greater demand from urban populations, backed by rising incomes and a more quality conscious population.

For foreign companies, the processed food market is the principal focus, yet consumption of processed and prepared foods is relatively low, with much of the population continuing to rely on subsistence foods such as cereals, breads, pulses and edible oils.

Rising incomes have led to relatively rapid increase in consumption of dairy products as well as meat and other high protein foods. The sales of spices, coffee, tea and cocoa have also been historically low, but have seen a gradual increase in recent years.

A recent study by McKinsey estimates the size of the domestic processed food industry at $ 33 billion, with the production of milk, fruit and vegetables dominating the sector.

AC Nielsen retail data indicates that foods and beverages form the fastest growing FMCG sector in India today. Foods have contributed 72 per cent to incremental FMCG value in 2004 over 2000.

Most of this has come from basics such as cooking oils, atta, rice and ghee — indicating an overall upswing in the commodity to branding movement. Increased spends on snacking, indulgence and convenience foods also account for some of the growth. The growth is seen across population strata and is not just an upper class metro phenomenon, the report says.

It adds there are three key areas that are likely to impact the future course of the industry and which could have fuelled the recent growth: changes in the consumer, supply-chain dynamics and marketing interventions.

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