International Summit on Food Processing and Agribusiness
               Emerging opportunities and strategic thrust areas for the industry


                                    Pankaj Kapoor
                                   Managing Director
                              Harrisons Malayalam Limited

Going For Growth
                        Ground Reality
                   Key Drivers – to be an agri
                         super power




Going For Growth
                   Ground reality – a study in contrast

• The largest grower of fruits – 15% of world output
       –Low share of global Exports at 0.5%
• The second largest grower of vegetables – 11 % of world output
       –Low share of global exports at 1.7%
       –Cold storage facility available for only 10% of produce
• Lowest cost producer of fruits & vegetables
       –Low farmer income – farmer suicide
• Second highest producer of milk
       – Organized dairy accounts for only 13% of milk produced
       – Only 70,000 Ton cold storage capacity for 90 million Tones produced
       – Poor yield per cow
• Second largest cattle population
       – 5500 registered & 25770 unregistered slaughter house with no chilling,
         freezing & cold storage facility as hot meat market prevails

                     Source: Task force Report on Development of cold chain in India – GOI/CII
Going For Growth
                              Ground reality (cont….)

• Fifth largest producer of eggs
     – Poultry meat sold as hot in retail market
• Sixth largest producer of fish
     – 20 – 30% damage and no cold storage facility in WB, AP, Goa
• Low processing
     – 2.20 % in fruits
     – 35 % in milk
     – 6 % in poultry
• Value addition – 20%
• India’s current share in world trade of processed foods – 1.60 %
• Poor lab to land transfer of technology and adoption of new
  varieties. example of pineapple
                   Source: Task force Report on Development of cold chain in India – GOI/CII
Going For Growth   APEDA data
                               Ground reality (cont….)

  •    Market surplus of fruits & vegetables – 88%
        – Farmer sells immediately due to perishability & absence of proper
           infrastructure to keep it for longer period
  •    Post Harvest wastage of fruits & vegetables – 25 to 35% valued at over Rs 45,000
        – Losses as above in India is more than consumption of same in UK
  •    Market surplus of food grains– 60%
        – Farmer keeps some for own consumption, seed purpose and to give to labour
           as wages
        – Loss in above equal to annual food grain production in Australia
  •    Cost of wastage 6 times amount spent on food subsidy
  •    Farm gate price 25% of domestic consumer retail price against 50% in developed
  •    Story of Fyffee PLc - in Banana Handling and Processing on the ships before final
       destination of selling.

                   Source: Task force Report on Development of cold chain in India – GOI/CII
Going For Growth
               Key Drivers – To be a Global Agri Super Power


           1           Optimal Agro                              credible co-   3
                         climatic                               ordinating &
                        conditions                               Promotion


                                 Strong                    Strong
                                Consumer                 Corporate
                   5              base                   leadership

Going For Growth
                   Role of Key Drivers

Going For Growth
                   Is India Ready to be a Global Power ?

Going For Growth
    Challenges And Strategy For Future …. Food processing
                    Challenges                        Opportunities
• Utilisation of scarce resources – MORE       Indian domestic market
  CROP PER DROP, power etc                     Diversifying into new markets and
• Varying taste preference within the          product segments
  country                                      Post harvest loss management
• Increasing International Competition         itself to provide funds for
• Non tariff barriers                          investment
• Integrated Food law to remove multiplicity
  of food laws & regulatory agencies

        Enhancing the sales of Value added products
        Creating Economies of Scale
        Lab to Land & Farm to Fork linkages
        Introducing innovative products

 Going For Growth
• Low level of value addition
      – Bottle necks in cold storage including during transit
      – Seasonality – capacity utilization issues e.g. Himachal apples 2006-07
        prod was half of 2005-06
      – Non Efficient storage/warehousing, processing & marketing techniques
      – Non adoption of efficient technology
• Infrastructure and others
      –    Shortage of power
      –    High electricity tariff
      –    Low area under Irrigation
      –    High capital cost -Inadequate institutional finance at low rates
      –    High insurance premium in risk coverage
      –    Farm connectivity by road yet to take off

Going For Growth
                             Challenges (cont….)

  • Quality and consistency at grass root levels
         –   Inputs delivery not in time
         –   Innumerable varieties
         –   Poor procurement and logistics
         –   Lack of cheap and timely credit

  • Weak and ineffective supply chain
         –   Non professional management
         –   Low revenue rentals
         –   Non Efficient and competitive retailing
         –   High wastage

                   Absence of a Successful Business Model.
Going For Growth
        Agri supply chain – a comparison with Developed countries

India                                    Trader      Wholesaler   Retailer
             Consolidator   Commission
Farmer                        agent

                                                                    High wastage and
                                                                       low margins

Developed countries Wholesaler
        Farmer                                                      High investments –
                                                                      Low wastage -
                                                                      better margins

   Going For Growth
               Challenges - Hurdles towards Value addition

  • Wide disparity between peak & lean period arrivals usually
    ranging from 100 – 150%
  • Long revenue cycle as products to be purchased in bulk during
    peak season
  • Control of markets by few traders and agents who command
    large storage capacity
  • Discouragement of farmer – lower returns act as disincentive
         – Crashing of prices during peak season
  • Larger intermediaries exerts negative pressure on farmer
    margin, and deteriorates quality due to multiple handling

Going For Growth
      Bottle-necks in Cold storage & Processing industry

  • Higher Tax duties including on packaging material
  • Lower capacity utilisation
         – Role of cold storage etc – current utilisation 48% of capacity
         – 5100 units with 216 lakh MT capacity
  •    Non adoptive of cost effective technology
  •    High working capital requirement
  •    High cost of finance
  •    Infrastructural constraints
  •    Dependence on intermediaries – inadequate farmer –
       processor linkages

                   Source: Task force Report on Development of cold chain in India – GOI/CII
Going For Growth
                      India …….. A land of opportunities

  • 52% cultivable land as against 11% world wide
  • Unsurpassed Natural Advantages
     – All the 15 major climates of the world
     – 46 out of the 60 soil types
     – 17% animal, 12% plant and 10% fish genetic resource of the
  • Food processing sector ranks fifth in terms of contribution to GDP
  • Indian urban food market estimated at 350,000 crore
  • Estimated investment in Food processing sector during 11th plan – 1
    lakh crore

                   Source: FICCI/KPMG study and Task force Report on Development of cold chain in India
                   – GOI/CII
Going For Growth
                    Road to Evergreen revolution …….

  • Horticulture crops – Fruits vegetables and flowers cover 7% of
    cropped area of the country
  • India ranks First in production of mango (65% of world)
    Bananas (11% of world) and papayas
  • India ranks Second in production of Lime and lemon
  • Exports quantity increased 4 times & value 10 times in last 15
  • Move to invest in 10 mega food parks in the country
  • Indian food processing industry averaging a growth of 10%

                   Source: Task force Report on Development of cold chain in India – GOI/CII
Going For Growth   Mc Kinsey reports
             Can India be a sourcing hub for food products ?

  • Good governance
         –   Strong , Stable and reform oriented government
         –   WTO signatory
         –   Strong economy comparatively resilient to the current economic crisis
         –   Focus on improving the Road connectivity
         –   Vision to solve the power situation – Nuclear energy
         –   Improving relationship with neighboring countries and a more
             important role in the WORLD ORDER
  • Focus on agri & rural sector
         –   Has a Strong agriculture base
         –   Increased out lay for rural spend
         –   Rural economy to be give the next big push to GDP
         –   Annual rural income to increase from 2.8% to 3.6% over next 2 years

Going For Growth          Source: FICCI – KPMG study
                            Indian growth story …….

  • Strong Corporate leadership
     – Indian is already …….
                   •   IT Hub of the world
                   •   Auto and auto ancillary hub to the world
                   •   Telecom hub
                   •   Acquiring global companies
                   •   India managers at the Helm of many Fortune 500 companies

                       India is preparing to take off …….

Going For Growth
                        Impetus by Govt

• Included in the list of Priority sector lending by banks since 1999
• Most of processed food Exempted from purview of licensing
  under the industries (Development & regulation) Act, 1951,
  except items reserved for small scale sector & alcoholic
• Excise duty for processed fruits & vegetables, food mixes etc. –
• Excise duty on reefer vans reduced from 16 to 8%
• Reduction in customs duty on food processing machinery
• Tax breaks
• Move towards GST

Going For Growth
  Towards being the 5th largest consumer market by 2025

      – Large young earning population
             • 50% of population under 25 years of age
             • Ready to experiment and try out new products
      – Increase in number of upper middle class & middle class by
        159 % & 63 % respectively
             • Urban population projected at 40% by 2020
             • Middle class of 200 – 250 million spread across the country to
               increase to 580 million by 2025
      – Dual income households
             • Higher disposable incomes
             • Ready to try out value added products

                     Source: Mc Kinsey Report May 2007: The Rise of India’s consumer market
Going For Growth
                                 Suggestions ….

  • Reduction of wastage /spoilage to be tackled on a war footing
         – Accelerated establishment of cold chain networks
         – Irradiation facilities and pest free warehouses
         – Encourage SSI units and corporate to set up food processing units

  • Improvement of productivity – both land and manpower
         – Example the case of Rubber where India has the highest land
           productivity in the world
         – Change in cultivation practices such as irrigation for paddy rather than
           method of flooding the fields

  • Price stability
         – Make farming remunerative to attract talent and retain farmer interest

Going For Growth
                      Suggestions …… Role for corporate

• Incentives to Corporate to enter core farming – land ceiling
• Increase Mechanization to tackle low availability of labour and to
  remain a low cost producer
• Liberalized credit norms for agricultural – production , marketing and
  infrastructure development
• Changes in market regulatory framework to allow corporate to
  establish market yards
     – At present 7521 regulated markets which lack critical infrastructure
• Review of legal instruments to facilitate entry in marketing activities
• Tax holidays and incentives
• Excise exemptions for CAPEX items.

Going For Growth
                   The Requirement: Striking a Balance


                     Partnerships                 Solutions

                       Speed                         Cost


Going For Growth

  • Food sector – the highest multiplier effect of any industry –
  • Tripling the size of the industry would generate
         – Direct employment – 28 lakh and Indirect employment – 74 lakh
  • Thrust in agriculture to be provide the next push to GDP and
  • Enhanced export earnings to compensate for any slow down
    in IT related exports

                          India - Sone ke chidiya

Going For Growth
                   A few words about us ……

Going For Growth
                   Harrisons Malayalam Ltd …… over the years

o HML’s predecessors Malayalam Plantations Limited and Harrisons & Crosfield
  Limited sterling companies incorporated in England – history of 150 years.

o In 1979, these companies incorporated as Indian Companies under the names
  Malayalam Plantations (India) Limited and Harrisons & Crosfield (India) Limited.

o In 1984, the two companies merged to form Harrisons Malayalam Limited.

o HML became part of the RPG Group in the year 1989.

o RPG Group - one of India's largest industrial conglomerates, with over 20
  companies in its fold, spread over 6 business sectors with an annual turnover over
  USD 3.25 Billion

o Winner of the maximum number of awards at the “The Golden Leaf India awards”
  (TGLIA) for quality teas
Going For Growth
                                  Vital Statistics ……….

      Largest plantation company based in South India.
      Single Largest Private Sector Employer in Kerala.
      HML has 25000 hectares of land under its fold
•             6000 hectares - in Tea, 8000 hectares - in Rubber
      Single largest producer of Natural Rubber in the Country
      Second largest producer of Tea in South India.
      Largest Corporate grower of Pineapple
     Presence in other horticulture crops – banana, passion fruit, cocoa, coconut,
     arecanut and spices
     Largest exporter of Teas in South India – Some Important customers -Twinings – UK,
     Saralee – Netherlands, Elink Schurmann – Rotterdam, May Co – Russia, Baeshan –
     Saudi Arabia , A F Jones – Sri Lanka

Going For Growth
              Caring for People and environment – The HML way …….

o An equal Opportunity employer with 7700 men and 8800 women workforce

o Winner of FICCI awards thrice for corporate initiatives in family welfare as a result of
  its Comprehensive Labour Welfare Scheme – aimed at improving the quality of life of
  the employees and their dependents.

o Pioneer in corporate social responsibility in Kerala with initiatives such as “Rakshita” a
  centre for development of children and adults with multiple disabilities

o Providing free medical aid for underprivileged in Rural Kerala.

o The only company in this sector to bag the Kerala State Pollution control award for its
  factory on more than one occasion emphasizing the responsibility and initiative taken
  by the company in preserving the natural resources for future generation.

   Going For Growth
                                HML financials ………

                                     2007-08   2008-09   % increase

            Sales ( Rs lacs)          20864    29244        40

            EBITDA (Rs Lacs)          2056      2280        11

            PBT (Rs Lacs)              699      801         15

                               40% Growth Year on Year basis
Going For Growth
                     ASPIRATION STATEMENT

                              To be a World class agri-
                              based profitable business

                              To make HML an exciting
                                  place to work.

                   Agri- based means that at least 75 % of our Top line to come from Agri based
                   Profitable means ROCE to be above cost of capital always and positive net-
Going For Growth
                   Open for discussions

Going For Growth
                   Thank You

Going For Growth

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