Why low level of food processing by Indian entrepreneurs?
The percentage of food processed in India is very low. A meager 6 to 7%. Whereas in China its 20% & in US its whopping 60% plus. On our research experiences pan country, what we learnt is that most of Indian food processing units or companies are small sized means poor economies of scale. It leads to the following problems:
Pricing : This is the prominent factor where Indian food processing entrepreneur usually fails. Since unit production cost is high being their production facility low, they can’t sell their products cheap unlike a big MNC, and on the contrary Indian consumers are religiously price sensitive.
Brand building : Small players means small profit. Further food processing treated in India as a seasonal business. In global market they can’t establish themselves as a long-term player – they only do opportunistic business, undercut each other.
Low insight : No investment or meager investment in R&D. That means no innovation in developing new product lines. For example like chili chewing gum or tomato flavoured biscuits. They are always less worried on the changing consumer behaviors.
Marketing : We have seen Indian prominent food business houses rely on their age old traditional business lines as a result they fall prey against the futuristic marketing practices of the MNCs. For example, Kelloggs is aggressively advertising its cornflakes in India, highlighting ‘weightloss’ benefits, but on the other hand, an Indian Halwai (sweet maker) never thinks to do the same level of marketing in USA to create demand for jalebi or peda.
Poor backward linkage : They never think of contract farming. Educating farmers. Giving them seeds, fertilizers or pesticides for innovative harvest. As a result, their products get rejected sometimes in US or EU markets. Resulting less or no export. Not meeting the standards of Codex or HACCP. There are examples of mango juice rejected for stone weevil, buffalo meat rejected for food-n-mouth disease, fish rejected for heavy metal contamination and so on.
No forward linkage : They never do forward linkage like opening their own factory retail outlets like Nike, Adidas or Apple. Small companies have to rely on third party retailers and need to give them lucrative margin from sales to exist hence profits decrease and poor economy continues.
Conclusion : Since the present regime of GOI foresees a significant growth & potential in food processing industry through its MAKE IN INDIA initiative and targets a USD300 billion industry till 2020, its high time for Indian food processing entrepreneurs to move in top gear to meet the sky.