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India has the second largest arable land of 161 million hectares and has the highest acreage under irrigation. Next to China, India ranks second largest food producer in the world and has the potential to immerge the biggest with its food and agricultural sector. India accounts for less than 1.5% of international food trade despite being one of the worlds major food producers, which indicates huge potential for both investors and exporters. Indias GDP is expected to grow in the range of 8-8.5% in the coming fiscal year, fuelled by robust investments and buoyant consumer spending. According to Goldman Sachs projections, Indias GDP will exceed Italys in 2020, Frances in 2020, Germanys in 2025 and Japans in 2035. Excessive controls, low public investment, inadequate infrastructure, poor agri-input management, distorted pricing and incentives structures, and inadequate credit weighed down Indias agricultural sector for several decades. The share of agriculture in Indias GDP has fallen by more than 60% in the past five decades. However, the policy environment is changing with increase in public investment, fading controls on product marketing and distribution, better pricediscovery mechanisms and improvement in credit availability. Indian agriculture, particularly food processing and allied activities is thus going through a major transformation with the government targeting 4% growth for the agri-sector from 2005-2020. In this project we have tried to make a plan of starting a new venture in this demanding industry. In this industry we have particularly chosen the Biscuit Industry. We have done research on almost every aspect of the Biscuit Industry. Then we have prepared the plan of capturing market phase wise, launching of products, developing Product Mix. After this we have prepared the feasibility report of the proposed project through financial analysis.
Growth (%)
18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
Growth (%)
Fig 3: Annual Percentage Growth of Biscuit Industry in India While the growth rate has been stagnating during 2003-2007, it has picked up momentum during the 2007-08 and the first quarter of 2008-09 mainly on account of exemption from Central Excise Duty on biscuits with MRP up to Rs.100/per kg, as per Union Budget for 2007-08. Indian Biscuit Manufacturers Association (IBMA), instrumental in obtaining the excise duty exemption, estimates annual growth of around 20% in the year 2008-09. Growth in biscuit marketing has been achieved also due to improvement in rural market penetration. The penetration in Rural Market is around 50-65% and in urban market is around 75-85%. Key Players Britannia Parle-G Sunfeast Anmol Priya Gold Bisk farm Cookieman Raja
Fig 4: Annual Production of Organized Segment in lakh metric tonnes Factors affecting the Industry Imposition of Value Added Tax (VAT) by the State Governments @ 12.5% compared to VAT at 4%/0% levied on other similar food products has also adversely affected biscuit industry. IBMA estimates annual growth in the range of 25% and above in the event of reduction in the rate of VAT on Biscuits to 4%. The poor efficiency of Supply Chain Management in our country is also affecting this industry adversely. Biscuits generally have shelf life of 6 months and the distribution of them takes around 15-20 days. Moreover, this increases the inventory holding cost too. Per capita consumption of Biscuits in the country is only 1.8 kg, as compared to 2.5 kg to 5.5 kg in South East Asian countries and European countries, and 7.5 kg USA. The per capita industry should increase for a huge market prospect.
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MANUFACTURING PROCESS
Biscuits are a traditional type of flour confectionery which were, and can still be, made and baked in a domestic kitchen. Now they are made mostly in factories on large production plants. These plants are large and complex and involve considerable mechanical sophistication.
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PRODUCTION UNIT
A typical Production unit consists of the following Raw Material Storage House Mixing Area Main Factory or Production Line Poly House Finished Goods Storage House Administration House Power House Water House or Tank or Plant Open Area or Partly Shaded Area for Loading and Unloading Typically the Main factory is long and, for the most part, normally on only one floor. The reason for the length is principally due to the oven. Tunnel ovens have baking bands that are usually between 800- 1400mm (31-55 in) in width. The length of the oven determines the output capacity of the plant. Ovens have been made up to 150 m in length but 60 m (about 200 feet) is probably the average length. Ideally, and normally, the ingredients are stored and handled at one end of the factory. Next to the ingredients store is the mixing area and next to that are the
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Table 1: Phase Wise Plan of Market Coverage Market (volume wise) of the targeted Geographic Market
Figures in Lakh Tonnes 1 2 3 4 5 6 Annual Production of the Industry in 2007-08 Annual Production of the Industry in 2009-10 (Growth is assumed to be 15% annually) Share of East Zone & North East Zone [28% of (2)] Share of the Phase 1 Coverage Area [35% of (3)] Share of the Phase 2 Coverage Area [{75% of (3)}*1.15] Share of the Phase 3 Coverage Area [{100% of (3)}*1.15 2] 17.44 23.06 6.45 1.94 5.56 8.53
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2) Machinery for Production Vertical or Horizontal Laminator Combination Sheeter Gauge Roll Rotary or Reciprocating Cutter Rest Conveyor Vertical & Horizontal Rotary Moulder Drive and Panner Salt / Sugar Sprinkler Oven Drive and Oven Tension Oven (Direct Gas fire or electric) Oil Filter Oil Spray Machine Cooling Conveyor Biscuit Stacking Machine Packing Conveyor Side scrap return system Reciprocating Distribution
3) Utilities Manufacturing of Biscuits will be through Electric Ovens. So our full plant will be dependent on Electricity. In case there is any power cut from the Electricity supplier then we have to immediately start the generator and this should not be delayed by more than 60 seconds. This is so because if biscuits remain inside the oven for more than 60 seconds then the whole lot will get burnt. Therefore, we will require a Power House where a generator will be kept and sufficient amount of fuel will also be stored. Again, our factory will be located in the industrial region so maybe there will be no supply of corporation water. Then we will require a Water Softner Plant. Here, the underground water will extracted and then it will be purified so that we ca use for our production purpose.
4) Miscellaneous Assets We will require some other assets too for both office and factory. For Office Furniture & Fittings, Electrical Equipments, Computers & Accessories
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5) Raw Materials & Packing Materials Wheat flour would be the basic raw material followed by soya flour. Others like starch, salt, sugar, ghee, baking soda, colours, flavours etc. shall be required in small quantity. Packing material like printed wrappers, plastic bags, cartons, box strapping etc. shall be required.
6) Manpower Requirements For Factory Skilled Labours Helpers Supervisors For Office Clerks Accountants Personal Manager Personal Department Finance Head Finance Department Marketing Head Marketing Department Sales Man Commercial Department Piaons & Guards Manager Electrical Guy Mechanical Guy
DUMPING
Now, the question is what we should of any scrap production, sub-standard production, or any production which flows back to the factory from retailers. For this we have thought of to sell these to the dairy or to the individuals as cow feed. This can be done at the rate of Rs. 25/kg. This will help us to lower our normal loss as these kinds of losses are very general to the biscuit industry.
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There are a number of food laws being implemented by various Ministries/Departments. These are primarily meant for two purposes namely (1) Regulation of Specifications of food and (2) Regulation of Hygienic condition of Processing/Manufacturing. Some of these food laws are mandatory and some are voluntary. The details of various food laws in operation in India are as under:-
A. Food Laws
1. Prevention of Food Adulteration Act (Ministry of Health) The Act lays down specifications for various food products and is mandatory. The Ministry of Health in 1995 had constituted a Task Force under the chairmanship of Shri E.S. Venkataramaiah, Chief Justice of India (retired). The Task Force recommended that there should be emphasis on good manufacturing practices instead of detection of adulteration and prosecution. It also expresses concern about lack of laboratory equipments and quantified persons. In addition it also suggested that the name of PFA Act be changed to Food Safety Act.
2. Agriculture Produce (Grading & Marking) Act (Ministry of Rural Development) This Act is commonly known as AGMARK and is voluntary. The Act lays down the specifications for various agricultural commodities including some processed foods.
3. Laws being operated by Bureau of Indian Standards (BIS) BIS is the largest body for formulating standards for various food items. These standards are also voluntary.
4. Essential Commodities Act A number of quality control orders have been issued under Essential Commodities Act such as FPO, MMPO, Meat Product Order and Vegetable Oils Control Order. These orders are
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The review of multiple laws is necessary to have a uniform and logical approach for regulating the quality of food. The following action is being taken by various Ministries:-
1. The Ministry of Civil Supplies & Consumer Affairs has brought out a paper for consideration of Committee of Secretaries (COS). The paper recommends that BIS should formulate standards for all food items in the country. This will be a major step towards harmonization of food laws and is still under consideration of COS for finalization.
2. The Task Force constituted by the Prime Minister under the chairmanship of Shri Nulsi Wadia has submitted its report which is under the consideration of the Government. The Task Force had advocated promotion of food safety and quality. The Task Force has further made following suggestions:
Food Regulation Authority (FRA) be set up to formulate and update food standards for domestic and export market.
FRA should replace the PFA to conform to international standards. The Task Force has given ten specific recommendations such as provision of storage simplicitor, simplification of sampling procedure, simplification of procedure for nominee, time limit for prosecution, standard methods of analysis to be prescribed, penalty should graded according to the gravity of offences and provision of adequate/infrastructure and laboratories.
Harmonisation of Indian standard with quality norms of Codex and WTO. The Central Committee of food Standard (CCFS) should be replaced by FRA Governing Body for expeditious decisions.
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Following Licences will be required 1) Licence will be required to set up factory. 2) Licence will be required under Water Pollution Act. 3) Licence will also be required for Labour Employment.
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Excel Files\23.xls
Note: 1) Annual Production (under capacity utilisation) = Annual Production (under installed Capacity)*Efficiency*No. of Shifts/3 2) Total Working Days = 25*12 = 300
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2) Rates of the Raw Materials are taken as Wheat Flour @ Rs. 15,000 per ton Soya Flour @ Rs. 30,000 per ton Sugar @ Rs. 24,000 per ton Vanaspati & Edible Oil @ Rs. 70,000 per ton Preservatives, etc @ Rs. 20,000 per ton
Excel Files\24A.xls
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Fringe Benefit Tax (FBT) is a type of Direct Tax. It is paid on the expenses which are paid from the account of the company but the expenses are not for business purpose instead it is for the personal purposes of employees. 20% of expenses for Telephone, Travelling & conveyance and 20% of Depreciation on Car adds up to Value of Fringe Benefit on which the FBT is paid.
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Annual Sales in tones Volume of the Geographical Market which has to be entered (in tones) Market Share (in %)
2.47
3.58
5.36
7.79
On the basis of analysis on the following page - the Profitability Ratios and Market Share we have decided to go with strategy III initially and if there will be any requirement of increasing the production then we can switch to either strategy IV or we can continue with the same strategy with overtime which ever will be suitable. The rationale behind going for strategy III and not IV is that initially a target of 7.25% market share can put a lot of pressure on the management. It can also lead to high Inventory days for Finished Goods which will put pressure on the Working Capital.
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Here requirement of Raw Materials and Packing Materials has been projected for the next years. The cost of Packing Materials is taken as 15% of sales. The cost of Raw Materials has been inflated by 5%.
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schedule has been prepared with starting date of project as 10th of April 2009.
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Excel Files\43.xls
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