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CII: Lacklustre Indian companies must invest more in R&D

Post a commentBy RJ Whitehead , 25-Aug-2014

A chronic lack of investment and incentives has stalled Indian food product development, according to a report released by the Confederation of Indian Industry (CII).

The study, compiled by Grant Thornton, also warned that constantly rising food prices will hit consumer demand if the government doesn’t step in to control the trend.

But the report’s key complaint concerned the lacklustre adoption of technology by the largely unorganised food industry, on which the CII blamed a lack of investment and credit facilities, along with the and time it takes for businesses to adopt new systems, in spite of increasing number of opportunities.

The growth of food processing sector needs to be a significant component of the second green revolution, considering its possible role in achieving increased agricultural production by ensuring better remuneration for farmers”, said Piruz Khambatta, chairman of the CII’s national food committee. 

A developed food processing industry will reduce wastage, ensure value addition, generate additional employment opportunities as well as export earnings and thus lead to better socioeconomic condition of millions of farm families.”

Organised food to grow

However, the organised food sector is expected to grow on the back of the growing middle-class and urbanisation, increased disposable income and changing lifestyles, and is expected to drive growth in the overall organised retail market.

The future of the food and beverages sector looks promising,” said Shanthi Vijetha of Grant Thornton. “While the agricultural sector is gearing up for supply with support from the government, food processing is expected to play a key role in bridging the gap between demand and the supply sides.” 

He added that the industry's growth will be dependent on its ability to organise, invest and innovate to deliver high value products to consumers. It must also address the key concerns of rising food prices and high levels of wastage.

The industry has transformed from being limited to food preservation, packaging and transportation to be able to adopt new trends in food processing.

M&A and private equity on the boil

Now it has become increasingly attractive to entrepreneurs, the report’s authors have noted significant deal activity with mixed contributions from corporate mergers and acquisitions and private equity investments. 

While the dairy segment has witnessed mostly private equity deals, the fruit and vegetable segment is yet to evolve, with only two such deals having taken place over the last three years.

But the future does still hold potential, wrote the authors. “Despite constraints linked to infrastructure, market access and funding, dynamic businesses operating in this sector have made their mark on the global stage. The next few years will be the golden years for the food and beverage sector,” predicted Harish HV, also of Grant Thornton.

Though food retail constitutes only 15-20% of the organised retail industry, it accounts for 70% of unorganised retail, and organised players who can tap into growth opportunities through investment for backend infrastructure and compliance matters, the report said. 

It also showed that higher real estate cost, rising prices and the cost of compliance are among the stumbling blocks for Indian food retail. 

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