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Indian food ingredients business to flourish

20 May 2009 812 views No Comment

THE GLOBAL market for food ingredients was estimated to be worth roughly $25bn (€18.5bn) in 2007, and is expected to reach $30bn by 2010, demonstrating a growth rate for the market of 5-6% year on year.

Globally, food ingredients is a multibillion dollar industry and is fast expanding, growing in sync with the processed food market. Innovation in the food and beverage market, especially in processed foods, has created innumerable opportunities for new product development in the ingredients market too.

Growing urbanization, changing lifestyles and the need for convenient healthy foods have ushered in a new category of functional and health foods that claim to be fortified with certain new-age health ingredients offering functional health benefits over and above the basic nutritional value of the foodstuff.

The Indian market has a low base when compared with the global market and was valued at $470m-475m for the year 2007, which is a meager 1.6% of the global market. But despite a low base, the scope of growth in the Indian food ingredients market is huge, given the current market size for processed foods in India, which stood at $72bn-75bn for the full year 2007-2008 and has been growing consistently at the rate of 9% year on year. The Indian food processing market is the fifth-largest market in the country and is a “sunrise sector” in India after IT.

There are more than 50 significant market players in the Indian food ingredients market, including globally prominent ingredient companies, such asDanish group Danisco, Dutch group DSM, US group The Solae Company and Germany’s BASF, which have an entire portfolio of ingredient types. These companies operate out of their subsidiary offices in India. For most of the ingredient types, the market is fairly concentrated, with the leading players occupying nearly 60-70% of the market.

GREAT POTENTIAL

The Indian food ingredients market is experiencing a growth rate of 7-8%/year. However, there are some niche segments, such as health food ingredients, that are growing in double digits. Hectic, sedentary lifestyles, the reluctance to exercise, and the desire to be in control of one’s health have fuelled the craze for functional foods and beverages, which in turn is expected to drive the health-benefiting-ingredients market.

Enzymes and artificial sweeteners are currently seeing moderate growth in India. Product innovation in the processed foods market has created better opportunities for usage of these products.

Also, an alarming rise in diabetes in India has driven the market for artificial sweeteners. The markets for other conventional ingredients such as flavors, colors and stabilizers are comparatively mature and market growth in these sectors is expected to be stable in the long term.

Most of the food ingredients manufactured in India and globally are derived from natural sources. The food ingredient industry is ideally the middleman and core link responsible for maintaining complete integration in the food-value chain, right from the farm gate to the end-food product stage. Hence, it is crucial for the entire chain that healthy growth of the food ingredients market be ensured.

CONSTRAINTS AND CHALLENGES

In India, the food ingredients industry has grown in stature over the past few years and it demonstrates immense potential. However, the market is plagued by a number of constraints and challenges that hinder prospects of better growth, such as:

Lack of commercial-scale cultivation of raw materials leads to low yield in terms of quality and quantity, which in turn fails to attract new investments in this sector;

Lack of a centralized regulatory system at the farm-gate level and the presence of too many middle men is a major problem in raw material sourcing since it is too scattered and leads to traceability issues;

Paucity of a cold storage infrastructure and an upgraded logistics and transportation system for perishable goods lead to substantial wastage of agricultural produce, adversely affecting the industry;

Lastly, multiple stringent food laws and regulations imposed by the food safety testing bodies is a key hindrance.

However, the Indian government has been actively promoting the food processing industry and hence the food ingredients market, with some revised laws and policies already in place. Key instances are the recent revision of the Agricultural Produce Marketing Committee (APMC) Act wherein commercial scale cultivation has been allowed. Also, the government has passed the Food Safety and Standards Act (FSSA), an attempt to consolidate all food safety laws and provide a one-window regulatory system.

In the long run, the Indian ingredients market, specifically the health ingredients category such as probiotics/omega fatty acids, is likely to see rapid developments. Presently, the degree of competition in the omega/probiotic end-product market is very low.

For instance, global sales of probiotic dairy drinks and yogurt is close to $12bn, as of 2007, while in India, probiotic dairy products from Amul, Nestle India and Mother Dairy India were introduced only in 2007. However, consumer exposure to imported health products and significant foreign investment in the Indian health and wellness sector such as the Yakult Danone India venture for probiotics drinks are sure to bring about new product development.

Aggressive ingredient development efforts from the market players, supported by investor-friendly reforms/policies from the Indian government, are the key to success, and are sure to drive the Indian food ingredients market in future.

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