Appetite for growth - agriculture and food processing sectors

India is one of the largest and fastest-growing markets for food and agricultural products in the world.

Agriculture is a mainstay of the Indian economy, accounting for about 18.5% of GDP. Some salient features of the Indian agricultural economy are as follows:

• Overall, India is the world's third largest producer of food

• India has emerged as the largest milk producing country, with annual milk production of over 100 million tonnes. This is expected to grow to 135 million tonnes by 2015.

• The Indian retail market for fresh fruit and vegetables is estimated at US$35 billion. Organised retailing is US$73 million and growing at a rate of 30 percent.

• India has vast resources of livestock, estimated at 485 million. In terms of population, India ranks first in buffaloes, second in cattle and goats, and third in sheep.

According to a recent study by the Federation of Indian Chambers of Commerce and Industry (FICCI) and Ernst & Young, the India food industry is set to grow by 42.5% from US$181 billion now to US$ 258 billion by 2015 and by 76% to US$ 318 billion by 2020.

Rapid growth in domestic food consumption is being fuelled by rising incomes, the emergence of organised food retailing (supermarkets, hypermarkets and convenience stores) and the growth of a middle class demanding western-style diets with a greater share of meat, dairy products and processed foods.

There remains significant room for growth. Current per capita expenditure on food is 1/6th that of China and 1/16th that of the US.

Investment and technology needs

Despite their size, India's agricultural and food processing sectors need massive investments to improve productivity. Much of India's food industry is still organised along traditional lines, with small scale producers, low levels of processing and weak distribution systems. Investment and technology are is needed to raise yields, improve livestock, increase processing, and create a more efficient supply chain. Consider the following facts:

• Although 70% of India's rural population owns cattle, milk yields are very low (about 1,000 kg per year as against a world average of 2,038 kg per year) due in part to poor quality stock.

• Only 35 percent of milk produced in India is processed. There is a huge potential for processing, value addition and adopting of technology for high yield milk production.

• Due to the lack of cold chain facilities and efficient distribution as well as processing capacity, post harvest losses in fruit and vegetables account for up to 25% of production. Only about 2% of fruit and vegetables are processed.

Through a range of fiscal concessions the Government of India is driving the development of the sector. For example:

• In 2005-06 India launch a National Horticultural Mission, with a target of doubling horticultural production by 2011-12. Since the inception of the Mission, an additional 1.26 million hectares have been brought under cultivation. Almost 2,000 nurseries have been established, and assistance has been provided to set up 1,108 pack houses and 109 cold storages. The budget allocation for the National Horticultural Mission in 2009-10 is Rs 830 crore (about NZ$260 million).

• The Indian Government a has prepared a vision for 2015 to increase the level of processing and to promote food processing industries to exploit both the domestic and international market potential for processed food products. The vision document envisages tripling the size of the processed food sector by increasing the level of processing of perishables from 6 percent to 20 percent value addition from 20 percent to 35 percent and share in global food trade from 1.5 percent to 3 percent by 2015.

Government support extends to specially favourable treatment of imports that support modernisation of the sector. For example, in 20010-11 budget, the government has announced concessional customs duties of 5% for imported cold storage equipment and agricultural machinery.

Opportunities for NZ businesses

Despite India's need for agricultural technology and New Zealand's capability in this area, NZ's exports to India remain low, implying significant scope for improvement.

Opportunities exist for New Zealand businesses across the supply chain, including plant and animal genetics, livestock management and health, biotechnology, packing and sorting equipment, water management, feed systems and so on.

However, it is vital to think beyond one off sales of agricultural machinery and explore the possibilities for collaboration more fully. We believe that IP-based collaboration (as a complement to just selling product) with Indian businesses is necessary to make the most of India, because:

1. it allows New Zealand companies to achieve scale in manufacturing and

2. the cost savings of manufacturing or assembling in India will provide some defence against cheaper Korean and Chinese products that present a major source of competition.

Do you want to export agricultural or food processing technology to India? Contact us.