Food Processing Industry: Growing Apace Despite Margins Coming

Yet, the Rs 130,000 crore strong industry is dominated by myriad tiny and small units. A few factors have helped its growth. The industry is a high priority area. Up to 51 per cent foreign equity is eligible for automatic approval in high priority areas like fruits and vegetable products, meat and poultry, fish processing, cereals and soya-based products.

This has benefited the industry through the proposed entry of some of the big names like Kellogg's, Macdonald's, PepsiCo ,Wrigley, Mars Inc and Cargill South Asia.

The basic driving force to the proceed industry is the fast changing Indian middle class that seeks to ape the modern lifestyles of the West. The traditional food habits are yielding way to the fast and packaged food to cater for the changing palates of the yuppie generation that calls the tune.

 

Experiences in more developed countries supports the fact that as income rise, processed food share in the total food consumption increases. The industry is slated to become a Rs 2 lakh crore strong one in the next 10 years.

And yet of its total fruits and vegetables output India processes only 1.5 per cent as against 70 per cent in developed countries. In other developing countries like Thailand, Brazil, Philippines and Malaysia the proportion between 40 and 83 per cent.

The food processing industry covers a wide gamut of products such as grain milling and grain based products, fruits and vegetable products, meat and poultry processing, deep sea fishing and aquaculture, alcoholic beverages, soft drinks/waters/confectionery, milk and milk products and other food additives and flavours.

That the companies have done well in major product segments does notconceal the fact that they suffered from a sharp rise in input costs and a consequent squeeze on profit margins in spite of a good rise in sales and profit in 1995-96.

In the year to March 1996, the select 26 food processing companies clocked a growth of 38.6 per cent in the sales income to Rs 3,781.9 crore (Rs 2,729.2 crore). Their operating profits rose to Rs 418.1 crore (Rs 318.3 core ), up 31. 3 per cent. Gross profits increased by 20.3 per cent to Rs 331.6 crore ( Rs 275. 7 crore) and net profit to Rs 207.9 crore (Rs 170.9 crore), which is up 21.7 per cent.

Operating profits margin of the 26 companies declined to 11.1 per cent (11.7 per cent), gross profits margin to 8.8 per cent (10.1 per cent) and net profit margin to 5.5 per cent (6.3 per cent).

The performance of the 26 companies is dominated by food and dairy products companies. In the sales income, the share of food and dairy products companies is over 70 per cent

The select ten food and dairy products companies reported an increase of 32.3 per cent in the sales income to Rs 2,744.8 crore (Rs 2,074.8 crore) . Their operating profits rose to Rs 317.8 crore (Rs 231.1 crore) up 37.5 per cent.

Gross profits of the ten companies rose to Rs 260.4 crore (Rs 209 crore) up 24.6 per cent and net profit by 30 per cent to Rs. 149.7 crore (Rs 115. 2 crore). Overall, Modern Dairies improved its sales income, Ravalgaon Sugar its operating profits, Cadbury India its gross and net profits.

Operating profits margins of the ten food & dairy product companies marginally improved to 11.6 per cent (11.1 per cent), whereas gross profits margin declined to 9.5 per cent (10.1 per cent) and net profit to 5.5 per cent (5.6 per cent).

The select 16 other food processing companies reported an increase of 58.5 per cent in the sales income to Rs 1,037.1 crore (Rs 654.4 crore ).

Their operating profits rose to Rs 100.3 crore (87.2 crore), up 15 per cent, and gross profits to Rs 71.2 crore (Rs 66.6 crore), up 6.9 per cent, while net profit touched Rs 58.2 crore (Rs 55. 7 crbr>