Favourable market trends point to boom in India's food & agribusiness sector

07 November 2018 Consultancy.asia 5 min. read

India’s food & agribusiness sector is set for a coming boom according to a report from local management firm Avalon Consulting, with $1.14 trillion worth of local consumption projected by 2025.

In an analysis conducted by Avalon Consulting, a leading Indian management consultancy member of the global consulting alliance Cordence Worldwide, the food & beverage industry of India has been tipped to reach a worth of $1.14 trillion by 2025 from its $369 billion value last year – at a compound annual growth rate of 15 percent.

Conducted in conjunction with industry investment firm Mandala Capital, the wide-ranging report looks into the local food and agribusiness sector as an attractive market for foreign investment, outlining a string of emerging market factors such as the country’s growing economy and favourable population demographics, its rising middle class and retail sector growth, and a number of government initiatives and industry investments.

Projected GDP growth of India to 2030

Perhaps the most striking aspect of the study is a reminder of India’s staggering population demographics. As noted by the consulting firm, within a decade India will be home to nearly a fifth of the world’s working age population (those aged between 15 and 64) – the largest in the world – and will also be the world’s youngest country in 2020 with its more than 1.3 billion-strong population boasting an average age of 29. The average age in China for example will be closer to 39.

Coupled with an economy which is set to become the world’s third largest behind China and the US by 2030, with a GDP of $10 trillion up from the $2.6 trillion of today (as currently the world’s sixth largest economy), along with a rising middle class with higher levels of disposable income, this enormous young workforce represents a growing number of mouths keen to sate their appetites, and a significant opportunity for food and agribusiness investors in the country.

Dietary breakdown of India compared to affluent markets

In terms of the higher middle and upper-class-driven demand for food in India, the report looks at comparative consumption levels in places such as China, the US and UK as a reflection of purchasing power – a lead indicator of greater consumption. In 2013, kilocalories consumed per capita in India stood at 2459, compared to 3108 in China and 3424 and 3682 for the UK and US – with the bulk of the Indian diet comprised of carbohydrates (~70 percent).

In the US, carbohydrates account for just ~48 percent of the average diet, with the remainder made up of fat (~40 percent) and protein (~12 percent) – compared to the ~19 percent and ~10 percent levels of fat and protein in the present Indian diet. With the middle and upper-most socio-economic class categories in India projected to grow at significant rates till 2031, the country can expect to experience drastically altered dietary habits.Socioeconomic demographic shifts in India to 2031Along with changing age and wealth demographics, the shift in consumption habits in India will be further driven by such factors as increasing urbanisation – which will jump from a 33 percent rate to 40 percent between 2016 and 2025 – and the greater exposure to western lifestyles city-living will bring, as well as decreasing family sizes which will in turn raise the number of decision-makers – another indicator of higher consumption. Currently, just 10 percent of food consumed in India is processed, compared to 80 percent in the US.

Taken together, these factors point toward a huge coming boom for India’s food & beverage sector, pegged by the researchers to reach a worth of $1.14 trillion by 2025 at a CAGR of 15 percent – no small fry for potential investors, as one might say. And along with this sizeable opportunity comes a range of recent economic reforms to improve the local business landscape (with India up 30 places on last year’s World Bank ‘Ease of Doing Business’ index’), as well as wide-ranging infrastructure investments and specific food and agri-industry initiatives enacted by the Indian government.

Ten-year investment growth in Indian food and agribusiness firms to 2017

Among the broad range of recent government sector initiatives are; a mega food park scheme, which is based on a cluster approach to develop a well-defined food processing zone with state-of-the-art facilities; a scheme for research & development in the food processing sector to develop new products and cost-effective food processing and packaging technologies, and; schemes for strengthening local institutions and skills development, opening up human capital for the food processing industry.

Already, this wider business-friendly suite of developments can be seen to be driving inbound investment into the local food & agribusiness industry. In just the past ten years, private equity and venture capital investments have more than tripled, from $299.5 million in 2007 to $1,128 million in 2017, with the average size of investment growing from $13 million to over $22 million in that time – led by the $184.7 million invested in Capital Foods by US firm General Atlantic this year.

“The consumer base is massive and purchasing power is increasing, (while) the government is taking concrete steps to make it easy for companies to invest and operate in India” say the report authors Santosh Sreedhar, Sriram Sunder and Naimish Dave in conclusion, the latter who has been with Avalon Consulting since its establishment in 1989 as serves at the firm’s Chief Operating Officer. “The time is right for investors to foray into the sector to gain an early advantage to capture their share of a growing market.”