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Analysis: Food Processing Industry (FPI) in India

, May 19, 2014, 0 Comments

In India, development of FPI contribute significantly in dealing with several challenges like unemployment, poverty, food security, inflation, nutrition etc.

The Ministry of Food Processing Industries (M-FPI)  is concerned with formulation and implementation of the policies and plans for the food processing industries within overall national priorities and objectives.Important roles of M-FPI include value addition to agricultural produce, minimizing wastage in the process chain, induction of modern technology, encouraging R&D, providing policy support, creating infrastructure etc.

Supply chain – FPI:
With the growing population of the country, demand of food increases and economy faces supply constraints. Consequently, the cost of food increases too. To bridge the gap of demand-supply and to optimize cost of production, supply-chain plays a vital role. It is implicative that with increasing demand, supply need to be increased. With the increment in inputs (phase 1 of supply-chain), pressure on the production process increases (if the number of production unit is same) and so on other consecutive processes. In a perfectly balanced supply chain, for one unit of extra input, extra procedural support is required from every part of the chain. This is the major challenge of food processing industry.FPI & Supply Chain-Marketexpress

GDP Analysis:
Strength of an industry can be understood from its contribution in the economy. The policy initiatives of the government and its impact is visible through GDP share and growth. Following charts illustrate the year wise share and growth of FPI.

To summarize – in last 3 years, FPI has recovered its GDP share and trending towards betterment. Recession period of 2008-10 had bitter impact on FPI’s growth and it has recovered strongly from that stage.

In the period of independence, FPI’s contribution to employment was 85% with 70% share in GDP and current contribution in employment is about 70%. It implies that the growth of other industries were much higher but unable to solve the problem of employment which is one of the important parameter of fiscal policy. Investment in the whole supply chain is key for value creation and for providing income to the sources of this chain.

FPI Share of GDP-MarketexpressFPI, GDP Growth-Marketexpress

Investment Scenario:
Investment in FPI is important for stability and growth of the industry. In the charts, concentration is on ‘planned outlay and expenditure of funds’ (2004-11) and ‘FDI’ (2004-13). In the premier one, the trend implies the sustainable policy measurement of MFPI and its implementation. The period of 2007-11 reflects a positive trend in achieved expenditure.

Another division of capital resources is ‘Bank Credit’. For the years of 2010, 2011 and 2012, the growth in ‘bank credit’ in FPI were 47.8%, 26.2% and 18.43%. In the industries including FPI, the growth of ‘bank credit’ for those years were 24.4%, 23.6% and 21.3%. High growth in 2010 was the result of low credit for the year of 2009 which was also the year for poor economic downturn. Stricter monetary policy, banking regulation, industrial risk and alternative investment opportunities are some of the reasons of downward trend of banking credit growth.FPI, Outlay &Expenditure-Marketexpress

FDI: MFPI’s policy statements reflect the importance of FDI with respect to the whole investment scenario of the sector. FDI up to 100% is permitted under the automatic route (except for items reserved for MSMEs) in FPI sector. Statistics of FDI in FPI is very poor. The whole trend reflects a non-synchronized movement with only high jump in the year of 2012-13 without establishing any positive trend.FPI & FDI Inflow-Marketexpress

Major Players in FPI:
On the basis of ‘Market Capitalization’ and ‘Total Assets’, top five BSE listed companies are selected and their ‘Strengths’ and ‘weaknesses’ analysed.FPI & Companies-Marketexpress

Profile:A listed, public limited MNC, headquartered in Gurgaon, Haryana
Strengths –Unmatched product and brand portfolio, R&D capabilities, distribution channel, brand reputation
Weaknesses– Inconsistent quality, weak implementation in CSR

Glaxosmith Con:
Profile: A listed, public limited MNC, headquartered in Worli, Mumbai
Strengths –Market leader, global presence, active CSR initiatives, effective marketing mixWeaknesses– Poor media management, high cost, high employee turnover

Profile: A listed, public limited, India based MNC, headquartered in Kolkata, West Bengal
Strengths –Long-time presence, trusted brand, efficient marketing strategy, strong rural presence, product diversificationWeaknesses –Lower market share, heavy expenditure, availability of product alternatives

Rei Agro:
Profile: A listed, public limited, India based MNC, headquartered in Delhi
Strengths –Strong regional presence, supplier relationship, integrated business model, superior quality of products
Weaknesses– High capital requirements and cost pressure

Profile: A listed, public limited, India based company, headquartered in Delhi
Strengths –Largest ‘basmati’ exporter, strong farmer relationship, R&D focus, excellent brand positioning, warehousing capabilities
Weaknesses– Seasonal and climatic uncertainties, high cost of export and distribution

As one of the base industries which have contribution to major sections of the economy, FPI has its own importance and analysis of FPI will help economic and industry analysts, investors (Equity and Debt) and entrepreneurs to understand the past performance and future prospect of this industry.

Source: DIPP | MFPI | IBEF | EPW