Moderator: Sushma Vasudeva, MD and partner, BCG
Sanjay Sharma, CEO, MTR Foods
Yogesh Bellani, CEO and director, FieldFresh Foods
RS Sodhi, managing director, GCMMF (Amul)
Vivek Chandra, CEO, LT Foods
Neel Kingston Jasper, CFO-foods division, ITC
Sushma Vasudeva (SV): Despite being one of the largest food producers in the world, our share of the global processed food market stands at less than 5%. Agricultural exports, as a percentage of GDP, is fairly low (2%), compared to Brazil (4%), Argentina (7%) and Thailand (9%).
However, there have been some segments, which have been growing – green milk products, processed fish and meat, and ready-to-eat and frozen foods. MoFPI has approved 100% EOU to encourage investments. Food processing is also one of the sectors identified under the PLI scheme.
Food processing offers one of the highest job opportunities with significant scope to boost farmer incomes. However, lower-cost competitiveness and higher unit production cost are challenges. On average, we are about 20-100% more expensive.
For example, the cost of tomato production is 1.75 times that of China despite low cost per hectare – the reason being lower productivity. Our export rejection rates are one of the highest. There is little awareness among farmers about what are the winning crops and varieties. Then there is the challenge of branding and presence with a limited number of GI and umbrella brands.
How is Amul planning to address the global market and what radical changes need to happen to address the challenges in the supply chain?
RS Sodhi (RS): India is one of the largest food producers, but if we add dairy into it, we are at USD 550 billion, out of which dairy is USD 110 billion and it will reach USD 200 billion in the next 10 years. Today we are 21% of the world's milk production and in 2030 we will be producing one-third of the world's milk and that too, by 100 million farmers. There is tremendous potential in dairy because most of the regions around India are milk deficient. Also, dairy provides sustainable rural employment.
Our per-unit cost of production is higher in comparison and the reason is simple – our model is low input, low output. Our farmers have three animals per unit compared to hundreds of animals and free green pastures in other countries.
Export of branded milk products is growing, but we are currently not competitive in exports of milk as a commodity. Most of the dairy surplus countries in Europe and USA, except New Zealand and Australia, highly subsidise milk exports. So we need to identify niche dairy products and work on it.
In the GoI PLI scheme, mozzarella cheese has been included, which is a buffalo cheese. Around 58% of India's milk production is buffalo milk. But we have to work from zero, as right now in the world market Indian mozzarella cheese is non-existent.
For the milk supply chain, one thing that is required is the separation of cow and buffalo milk. Right now, most of the milk is mixed. We cannot compete in cow milk, but buffalo milk is our USP. So, we need to have separate collection and processing lines for cow and buffalo milk.
Most of our neighbouring countries are milk deficient and we need to see how we can reach these countries. This is where the role of policymakers is important. Right now, the world's top 10 dairy importing countries don't allow imports from India. We need to negotiate free trade, tariff and non-tariff barriers with these counties. Countries such as Indonesia are able to negotiate lower duties when they export their oil to India, but we are not asking them to reduce the duty on our processed food exports.
Sanjay Sharma (SS): Indians have been successful migrants and wherever they have gone, they have formed part of high earners. Currently, 43% of the Indian food export market is in the US. The UK is another big market. The market is pretty much spread according to the Indian diaspora population around the world.
Indian ready-to-eat is a fairly underdeveloped market and faces similar challenges of the higher unit cost of production and tariff and non-tariff barriers. We also need to work on ease of doing business as we need to go through various departments for testing and approvals. Exporting is not an easy proposition.
Speaking of Africa, everyone thinks it is the future market. Most of the Indians in Africa are fourth or fifth generation. They have adapted to their local environment, so we can't just go and sell Indian food to them. It needs to be presented in their local context to make these products relevant to them.
What is the future scope in rice exports and value addition and what are the learnings on the newer export categories?
Vivek Chandra (VC): Basmati exports, currently valued at Rs 33,000 crores, are a very big part of Indian agricultural exports. On the other hand, basmati is consumed by a very discerning consumer. Out of 500 million MT of rice that is consumed, only 10 million MT is basmati rice.
We work on three operating guidelines. Firstly, sustainable, profitable and growing businesses are created when we sell our own brands. There is a temptation in commodities such as rice to trade and supply unbranded because that is immediate gain. Whereas building a brand needs handwork over a long period of time, but can pay huge dividends. Globally, there are about 15 basmati brands. You can either be a supplier to them or be one of them.
Secondly, brands allow us to capture a lot of upstream value in the value chain. We work on creating a global market while creating our brand and positions in those markets. We sell Dawat to about 80 countries. Initially, we started by following the South Asian diaspora, but we are now expanding to the local ethnic groups. This requires traditional marketing along with experiential marketing as you try to pioneer new categories.
The third one is government support, which is important, but it can't be just for one or two years. As the brand building takes time, the scheme and policies should be around for 5-10 years. The key is to understand consumer palate, but more importantly price-value dynamics of each market and then create suitable offerings.
Another key is identifying where the opportunity is. The Middle East is the largest market for basmati, but it is now saturated. Far-East nations eat sticky rice. Africa is very price-sensitive, so we are left with the EU and the US. Traditionally, we used to think that they don't eat basmati. But they consume around 9 million MT, out of which basmati is about 6,00,000 MT. Developing these markets is key. To build these, we acquired two brands – Royal in the US and Eight Months Seven in Canada. With these brands and Dawat, we have about 50% market share of North America. We are trying to expand the market to other ethnic groups.
Value addition goes a long way in building uniqueness and resilient consumer demand. We need to have products in line with how consumers interact with the category and how it can enable more consumption.
For example, a big trend that came about during pandemic was convenience. Convenience in America meant ready-to-eat rice. So, we launched heat-and-eat products and it took off well. But, in India, people don't want to substitute the entire cooking process. So, we launched ready-to-cook offerings such as Dawat rice saute sauces and kappa rice. Value addition should not just be a process or a technology initiative, but something that the consumers in those markets need to interact with that category.
How can we capitalise on the trend towards healthy foods and organic alternatives?
VC: During the pandemic, consumers altered in four ways – what they are consuming, where they are consuming, where they are buying it from, and how they are consuming information. Any company operating in this space will have to address all of these.
Concerning the first point, eating hygienic, healthy food becomes very high. Our organic foods company Nature Bio Food, which supplies processed food ingredients, have seen a big increase in demand. We launched our own brand called Ecolive and acquired share in a Dutch brand to reach the consumers.
The key in organic is how you get the back-end supply chain right. It takes four years to make a farm organic depending on soil condition. The new farm laws that allow contract farming can be a big game-changer in creating a reliable organic supply chain. There is a demand, but we need to bring value-added products. If we trade only in commodities, it is going to be vulnerable.
Looking at health and immunity, we launched an iron and vitamin-fortified variant called Dawat Sehat and it is gaining significant market share. Interestingly, this sort of product will also do well in many areas of the world where malnutrition is a concern. This can be a big driver for the shift from commodity rice to value-added rice exports from India. Such offerings can also be built in other categories such as fortified atta, fortified dairy, staples and more.
FSSAI is ensuring Indian food standards meet global benchmarks
We are seeing more and more private and white label entering the market. What are your views on the role of the brand from an export perspective?
Yogesh Bellani (YB): Private labels are not a new thing. It has been around for decades. Whenever there is very little differentiation left to make among products, retailers will use a private label strategy to gain market share.
It can be seen as instant gratification, but brand building takes a very long time. Even getting private labels approved in a market is not an easy thing to do. With a private label, you are playing one level up in the value chain, which is better than playing at the commodity level. From there, you can build further points of differentiation.
Of the many challenges that were discussed, one is the unit cost of production and to address this, we need scale. Private labels can offer this initial scale upon which we can build. There are a lot of value additions in the back-end, which can differentiate such as traceability, or taking out from the recipe what's not needed or making them more natural.
What is ITC's view on creating efficiencies in the value chain and how have you used technology to do that?
Neel Kingston Jasper (NJ): ITC also started as an exporter of commodities, but over time we started to look at what value adds we can make. We have a programme that helps us source chillies from integrated pest managed farms. The sourcing advantage in residue-free or organic can be a big differentiator even in simple commodities such as cumin or chilli. Wheat and wheat products is a big market, but we are nowhere in the international market. We need to identify varieties that can fill a certain niche and target it.
How do we get closer to farmers and partner farming and other partnerships?
SS: We started it for Byadagi chilli, as its acreage was going down and it was seeing an inflationary trend. Chilli plays two roles – one is to give flavour and the other is to give rich colour. The partner programme secures supplies for domestic operations but also fuels our exports. There are no standards in agriculture, but there are a lot of standards in processed food exports. Pesticide residue is a big concern and there is no way we can remove pesticide. The only way is to partner with farmers and work closely with them. Even a child will know about Alpino peppers, but we don't know much about Indian peppers or chilli even when we are making the best of varieties. This is because we have never made an effort into marketing them. Once we will be able to build these brands abroad, we will also be able to remunerate farmers well.
YB: Partner farming creates an ecosystem of farmers, which gives you multiple advantages over a period of time. The advantages are that they give you quality products consistently. More importantly, it helps in creating intangible differentiation – a lot of evolved consumers want to know where the product is coming from, what is the story and the purpose behind it. Some of the large coffee brands are built just by talking about their origins and how they are helping farmers. Partner farming helps in solving the assurance part of the supply chain. To increase farm incomes, we need the right procedures and practice and we can't complain that these are small farm holding. We need to work with it as partner farming provides the right way. But to develop this takes a lot of perseverance.
What are some of the bets that you think will win?
NJ: Indian cuisine is something that has big potential. We have taken our software and movies in the world, now it's time to take our food.
Wheat is something that is consumed globally in various forms. Dairy – even if there are challenges and even if it means redoing our supply chain bottom up. Protein is an important space, be it sourced from milk or meat or vegetarian sources.