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Thursday, May 28, 2009

Food Processing vis-a-vis Rural India

Exploration of Entrepreneurial Scope in Ago-Based Food Processing Sector in India

“It is of vital importance to enrich low grade foods; develop new types of protective foods from indigenous food resources in conformity with the time honored taste and dietary patterns, apply traditional methods scientifically and adopt them to get food of better nutritional value”
----- Jawahawlal Nehru
The above quote might serve as a key-note in the search and exploration for the scope of Entrepreneurship Promotion and development of Food Processing Industries in India at large. The quote may be further expanded to give way to a thought process which is entirely new but crucial as well, for the promotion of ‘Food’ related subjects. Without entering into detailed debate over what the great man said, it is worth to highlight the “Food For Thought” contained in the saying with is pertinent to invoke a new vision for Food Processing Industries in India. It is represented below diagrammatically:
Food Processing Industries ---
1.Enrich low grade foods
2.Develope new types of foods. ----from Traditional Foods from Indigenous Food Resources , with emphasis on--1.Taste (TQualityM) & 2.Dietry Pattern
3.Apply traditional methods.
Continuing the above thought process, the exploration for the scope of Entrepreneurship Promotion and development of Food Processing Industries is narrated beginning with the Attitude during exploration, present Potentials, critical Discussion, examining the market scenario; some conclusions are drawn with a view that home and cottage scale FP Industries may turn towards highly potential Rural Market of India, before the shadow of towering MNCs, and corporate world.
This is the high time when the traditional food dishes should be examined with their regional variations to catch rural buyers who are though poor but form the majority.
The Attitude:
While exploring the scope for Entrepreneurship development in an area like Food and Drink, which bears not only commercial but also social and cultural values, a close analysis of the whole network – from production to consumption – is essential so that three basic strategies can be decided; viz:
1. For whom to produce (the end product of a value-addition process)? In other words, what/who would be the targeted market/buyers?
2 What to produce? In other words, what kind of Goods or Services? And
3. How to produce? In other words; whether a viable technology is available/accessible?
Nevertheless the Entrepreneurship is deemed as an endeavor to generate “goods” or “services” which can be exchanged as trading commodity. Thus, choosing the target group of consumer is of prime importance. Since the place where trade exchange takes place is termed as “Market”, therefore, allowing every possible speculation like export or bulk buying tie-ups, main focus has to be “Domestic Market”. Viability of the project or enterprise must be based on Local or Indigenous Market This statement does not undermine or underestimate the importance of 100% EOUs (Export Oriented Units) but rather substantiate it, because “Qualitatively standardized domestic surplus can be export commodity” (Indian Food Packer, vol XXXIII). It is, therefore, necessary to understand the domestic consumer groups; its needs, wants, liking and overall welfare too.
The success of any enterprise depends on its social acceptance, which is reciprocal to the benefits it (the enterprise) spills over amongst masses. Business and Welfare must be complementary to each other. A note of caution must be kept in mind that the society (mass) is rarely enthusiastic into long-term goals; instead it wants immediate and apparent benefits. Thus, the activities, which aim towards long-term goals, are often ignored or even opposed by the society at large. General populace is not at all concerned with the future gains from Sardar-Sarovar or Tehri-Dam projects, but their immediate worry is that of deportation and becoming homeless. Thus, the product should be utility based.
Let us now examine the potentials in the area of Agro-Based Foods
Potentials:
The following points are to be noted, because they shall appear later in the discussion:
It is, however, not a heavy weight industry but has the potential to develop into a Sunshine Industry of the country
India is the world's second largest producer of fruits & vegetables, but hardly 2% of the produce is processed. India is the land of spices producing all varieties worth over Rs. 3500 crores (US $ 900million) amounting to 25-30% of world production, which is processed for value-addition and export.
Primary food processing is a major industry with lakhs of rice-mills/hullers, flour mills, pulse mills and oil-seed mills. There are several thousands of bakeries, traditional food units and fruit/veg./spice processing units in unorganized sector.
Important sub sectors in food processing industries are:- Fruit & Vegetable Processing, Fish-processing, Milk Processing, Meat & Poultry Processing, Packaged/Convenience Foods, Alcoholic beverages & Soft drinks and Grain Processing etc
The industry has witnessed fast growth in most of the segments. As per a recent study on the food processing sector, the turnover of the total food market is approximately Rs.250,000 crores (US $ 69.4 billion) out of which value-added food products comprise Rs.80,000 crores (US $ 22.2 billion)
In the organized sector, there are over 820 flour mills, 418 fish processing units, 5198 fruit/veg processing units, 171 meat processing units.
Size of the semi-processed and ready to eat packaged food industry is over Rs. 4000 crores (US $ 1 billion) and is growing at over 20% Size of the semi-processed and ready to eat packaged food industry is over Rs. 4000 crores (US $ 1 billion) and is growing at over 20%
(Source- 1 APEDA Export Statistics and Annual Report 1999-2000,MFPI
2 From Ministry of Food Processing Industries, Govt of India web site)
Discussion
Under prevailing circumstances the policy makers are very pessimistic about the “domestic consumption/market” by stating that:
“…In spite of the fact that India is the second largest producer of fruit and also of vegetables in the world yet the commercial processing of fruit & vegetables is less than 2.0%. The main reason being that domestic consumption of processed items is quite meager because of economic reasons and also as a matter of habit. The Indian consumers by and large very much prefer fresh fruit & vegetables. The high cost of packaging pushes up the cost of the processed items and thereby makes them out of reach of the common man….” (Annual Report’2000, MFPI, Govt of India)
The fact is true, but the reason thereof is only partially true. Lower domestic consumption may not only be due to cost, affordability and food habit factors; other factors like “Presentation” and “Product Range” may equally be responsible for lower domestic consumption. Probably the error in investigation for the cause of lower domestic consumption lies in identifying domestic market with Urban Market only, completely ignoring Rural Market on the grounds of food habit or eating behavior. The potentials highlighted above indicate that Primary food processing is a major industry; Let us understand why? Most probably it is because, in quantitative terms, its share is more in Rural Market than in Urban Market; Also because the cereals form major portion of Indian diet. Thus, if rural market oriented “Presentation” (attractive pouch-packs) and the “Product Range” (ready to eat Traditional recipe products) may be encouraged in Food Processing sector, there are good chances that the industry would get may be meager share, but vast in size, of Rural Market of India. Then the term “domestic” market may signify real domestic market of India.
It is very pleasing to note that in speculating the Future of the Industry, the agencies and Govt departments of India have indirectly focused their attention to rural areas, though with a view not to explore rural market, but to harness the traditional Foods for urban and export markets. Their vision for future is:
“….Because of the liberal government and other developmental measures being taken the future of the Industry looks very bright. The production base is being enlarged, modern methods of cultivation are being adopted thus improving the productivity and cutting the per unit cost. To some extent cold chain is being provided, which will help in retaining quality, freshness and reduce post-harvest losses. With the new hybrid varieties being added the production season is also being extended. These developments shall result in the greater availability of quality raw materials to the industry thus resulting in better capacity utilisation and producing a wider range of products and of international quality. The quality is now the watchword for success. The multinationals now entering the food industry have an international marketing network and have their brand loyalties all over the world. This will enable the Indian products reaching all over the world in the form and packing required. With the rise in the per capita income particularly of the middle class a drastic change in the food habits has been noticed. This will lead to an increased domestic consumption of processed foodstuffs. India produces large variety of fruits & vegetables ---- tropical, sub-tropical or temperate. These include mango, banana, apple, orange, chikoo, ber, pomegranates, etc., and vegetables like potato, tomato, onion, cauliflower, cabbage etc. The total area under fruits and vegetables cultivation is estimated to be at 5.63 and 5.6 million hectares……”
(Source- Annual Report 1999-2000, MFPI/APEDA
Export Statistics & NHB Horticulture Statistics.
The future vision is clear but still it seems ignoring vast rural market of India. Quality is, of course, watchword and the concept of TQM (Total Quality management) is a must; on the other hand facilitating the unorganized sector of the Industry too is essential because precisely that is the sector which fits in properly in terms of utilization of man power and mobilizing the indigenous resources. The corporate world, MNCs and Joint Ventures would continue to be Major players in the Industry but small and cottage scale Entrepreneurs must not be ignored.
A possible way for absorbing the efforts of unorganized sector is to break-up the manufacturing process, and shift labour intensive processes like peeling, cutting/slicing/pulping etc to them, thus creating a network for procurement of raw materials (especially fresh fruits and vegetables). These processes may be called “Semi-Finished Processing” from Final product Manufacturers view, not from consumer point of view as the Ministry of Food Processing Industries; Govt of India has recognized the term “Semi-processed/Ready to eat food/ Convenience Packed Foods”.
This sector (Semi-processed/Ready to eat food/ Convenience Packed Foods) too has enormous potential to capture the attention of the consumers of rural area. The present status has been projected as under:
“….This segment comprises of bread, biscuits and other bakery products, confectionery, chocolates and cocoa products, soya-based products, ready to eat pasta products like noodles, cereal flakes etc., high protein foods and other processed foods/snack foods. Besides, items like starch, glucose etc, required for food products is also included. The Soya products industry, worth over Rs.80 crores (US $ 22.2 million) , has been growing at around 10% and includes products like soya milk, nuggets, flour and texturised soya foods & snacks. Several large units have come up due to their enormous export potential.
The size of the semi-processed/ready to eat food segment is over Rs.4000 crores (US $ 1.1 billion) with over 60,000 bakeries, 20,000 traditional food units and several pasta food units. Large biscuits & confectionery units, soyas processing units and starch/glucose/sorbitol producing units have also come up, catering to domestic and international markets. In confectionery & cocoa based products several MNCs have set up manufacturing units. Production of macroni/noodles is about 16500 tons, pearl barley at 1,240 tons and corn-flakes at about 600 tons. Annual Production of bread & biscuits and other bakery products in the country is estimated at 30 million tonnes.
(Source-Food Processing Industries in India)

Above discussion is based on two key terms ---- Market Size, and Market Portion or share. As regards Rural Market, its size is enormous (nearly 10 times compared to Urban), but processed foods have negligible share in this (rural) market. Let us now see what are characteristics and trends, and what is the situation of other consumer goods manufacturing companies including MNCs which have paved their way into the Rural Market
Rural Marketing
The rural India has a plethora of opportunities all waiting to be harnessed
Not surprisingly, it has become the latest marketing buzzword for most of the Market players. Many of the MNCs are busy formulating their rural marketing strategy to tap the chance .To name few companies showing deep interest in rural India are HLL, Marico industries, Colgate – Palmolive and Britannia Industries.
Why Rural India?
Almost 70 % of India’s population lives in 627000 villages in rural areas. 90 % of the rural population is concentrated in villages with a population of less than 2000, with agriculture being the main business. This simply shows the great potentiality rural India has to bring the much-needed volumes and help the companies to bank upon the volume –driven growth. This brings a boon in disguise for the MNCs who have already reached the plateau of their business curve in urban India.
As per the National Council for Applied Economic Research (NCAER) study, there are as many 'middle income and above' households in the rural areas as there are in the urban areas. There are almost twice as many 'lower middle income' households in rural areas as in the urban areas. At the highest income level there are 2.3 million urban households as against 1.6 million households in rural areas.
According to the NCAER projections, the number of middle and high-income households in rural India is expected to grow from 80 million to 111 million by 2007. In urban India, the same is expected to grow from 46 million to 59 million. Thus, the absolute size of rural India is expected to be double that of urban India.
MARKETING STRATEGY:
In-depth knowledge of the village psyche, strong distribution channels and awareness are the prerequisites for making a dent into the rural market.
Rural Market Psyche:
The price sensitivity of a consumer in a village is something the rural marketers should be aware of. In terms of Mr.Dalveer Singh –VP, Ogilvy Outreach, the strategy revolves around what attracts the rural customers to a product. For e.g. packaging. The rural customers are generally the daily wage earners and thus they don’t have the monthly incomes like their urban counterpart has .So it makes sense, packaging in smaller units and lesser-priced packs to increase their affordability. Colour that attracts them is also important. Convenience is the other key word. Here Colgate is the apt example. First of all it made sachets as was required by their income streams. Secondly –since many households don’t have proper bathroom and only have a window similar things so it made sense to cap these sachets for convenience of storage while use. Britannia with its Tiger brand of biscuits with its low priced and conveniently packaged products became some of the success story in rural marketing.
Distribution channel:
Study on buying behaviour of rural consumer indicates that the rural retailers influences 35% of purchase occasions. Therefore, sheer product availability can affect decision of brand choice, volumes and market share. Some of the MNCs giants like HLL took out project streamline to significantly enhance the control on the rural supply chain through a network of rural sub-stockists, who are based in the villages only. Apart from this to acquire further edge in distribution HLL started Project Shakti in partnership with Self Help groups of rural women.
Awareness:
Mass media is able to reach only to 57% of the rural population. Creating awareness then, means utilizing targeted, unconventional media including ambient media .For generating awareness, events like fairs and festivals, Haats etc. are used as occasions for brand communication. Cinema vans, shop-fronts, walls and wells are other media vehicles that have been utilized to increase brand and pack visibility. Ideas like putting stickers on the hand pumps, walls of the wells putting on tin plates on al the tree surrounding the pond are some of the innovative media used by personal wash like Lux and Lifebuoy and fabric wash items like Rin and Wheel. Idea was to advertise not only at the point of purchase but also at the time of consumption.
(Source: From “Rural marketing” to “Awareness” -- Shiromani Kant, India Infoline Newsletter.)

Conclusion:
The Food Processing Industry sector in India is one of the largest in terms of production, consumption, export and growth prospects. Packaged food products have been slow in penetrating the large potential presented by India's 250 million strong middle class. The growth of processed food product depends on the changes in the attitude, life style of the consumers and the promotional activities. The products should, therefore, be processed according to the tastes and preferences of the consumers to get their acceptance. In addition, the price, quality and the nature of packaging must also be appealing to the consumers.
It is important to note that the household consumers' market is rapidly changing in terms to taste and preferences of the consumers. This may be due to urbanisation, increase in working population, literacy level and increasing trend in the foreign travels. Thus, the scope of Entrepreneurial Development is enormous in this sector provided Domestic Rural Markets are focused as first target group for marketing
In addition, other changes like increase in size of household, family income and hence in the standard of living; change in food habits and increasing health consciousness etc., have also brought in the attitudinal changes among the consumers. It is , therefore, important that the enterprise should focus the Domestic via-a-vis Rural market. Definitely there is lot of money in rural India. But there are hindrances at the same time .The greatest hindrance is that the rural market is still evolving and there is no set format to understand consumer behaviour .Lot of study is still to be conducted in order to understand the rural consumer. Only Entrepreneur who can understand and evaluate the rural consumer groups; its needs, wants, liking and overall welfare, with unwavering rural commitment and staying power will be able to stay longer on this rural race.
Some Important Contacts for further Guidance:
1.Mr. A.M. Manektala, Coordinating Officer, Information and Facilitation Centre, MFPI, Panchsheel Bhawan, Khel Gaon Marg, New Delhi-1100049
2. Email to Joint Secretary, A N P Sinha
3. Public Relation Officer, CFTRI, Mysore
Acknowledgements:
1. Indian Food Packer, vol XXXIII
2. APEDA Export Statistics
3. Annual Report 1999-2000, MFPI
4. Ministry of Food Processing Industries, Govt of India web site
5. NHB Horticulture Statistics
6. Food Processing Industries in India.MFPI Publication
7. Shiromani Kant, India Infoline Newsletter


About the author:
S.C. Srivastava, Food Technologist. Worked nearly all areas varying from Technical research/study Projects and Managing Large Scale Factories to Rural Industrialization, Marketing, Product Development etc. related to Food, more specifically, Fruit and Vegetable Processing for about 40 years; now retired as Deputy Director (Extension).Department of Horticulture and Food Processing, Govt of Utter Pradesh. In his official capacity he had been a member of advisory committee on Food Standards, FAD-10 to Beuro of Standards (BIS). Govt of India. Presently he is working as Consultant and Advisor to many Food Processing Enterprises. His contact address is
C-2045/4, Indira Nagar, Lucknow, Pin-226016, Phone 0522-2340432

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