Starch Industry in India: Supply and Demand Scenario

By Bibek (Bibekananda) Chelleng *


Despite the various technological developments around the world, starch continues to be a major building block in modern societies and its use continues to expand in areas with strong economic growth. Starch derivatives, including glucose syrup and HFCS, are used widely across many industries. After facing a slow-down following the global financial collapse in 2008, the starch industry has performed well in the last 7 to 8 years and the production of ‘primary’ starch (‘primary starch’ is used to identify the slurry resulting from the primary conversion of the raw material.) increased from 62 mn tons in 2009/10 to 75.2 mn tons in 2014/15. Much of this growth continues to come from China and the other rapidly developing economies in Asia and the MEA regions, whereas in the more traditional western starch markets, the demand has been slowing down and is now more closely following population dynamics. It is this difference in growth dynamics that has been the determining factor for the changing face of the starch business over the last ten to fifteen years. While agricultural policy changes and shifting barriers to trade are often perceived to be factors of change in the business, they tend to be of secondary importance since they are often an attempt to protect local interests from the pressures in supply/demand that are brought about by these differences in growth patterns.

The Indian starches and derivatives market scenario has witnessed significant changes in the last few years. The industry looks promising with many large players investing in quality of starches and derivatives.

Raw Material

Starch Industry in IndiaThe major raw material for the Indian starch industry is maize. The other raw materials used are tapioca and potato but the volume of starch production using these raw materials is small as compared to that from maize. Maize harvest scenario in India has been good over the last few years and, in 2015-16, India recorded an output of around 24.5 mn tons. The kg per hectare yield of maize in India also increased from 2000 in 2009-10 to 2564 in 2014-15. Of the total maize produced in India, only 10 to 12 percent is being consumed by the starch industry. Poultry and animal feed industry get priority in terms of maize supply over the starch industry. Hence, for the CWMs (corn wet mills), obtaining the right quality of maize as well as ensuring a seamless supply of maize are the most important for the good quality and continuous production of starches and sweeteners.

Another raw material for use is the tapioca or cassava root. However, the use of tapioca for the production of starches is very limited with only a handful of players producing sizeable quantities of tapioca starch. There is a significant demand for tapioca starches in India in segments such as snacks, but most of the demand is met through imports from Thailand. There are various reasons attributed to the low level of consumption of tapioca in starch production: tapioca has never been a priority for the state or central governments; inefficient farming; frequent attack of diseases: lack of effective research: and, poor shelf life of tapioca tubers.

Supply

Starch processing is one of the top 5 food processing industries in India with a significant history of high employment, food product growth and food infrastructure developments. Maize is the major raw material used to produce starches and the derivatives. The number of corn wet millers has grown significantly since 2005 due to capacity additions as well as new entities with 150 tpd (tons per day) and 300 tpd milling capacities coming on stream in the recent past. The increasing number of local equipment manufacturers encourages small domestic producers to enter this industry. More than 10 new players have entered the market between 2010 and 2015/16. Primary starch production grew at a CAGR of 19 percent between the years 2010/11 to 2015-16. However, not all the capacities are being utilized and currently as per F1rst’s estimate, the average capacity utilization is approximately <70 percent. The top 10 producers account for a sizable amount of the total production. A few of the top producers of starches and derivatives in India are Roquette India, Gujarat Ambuja, Sukhjit Starch, Vijaya Nagar Biotech, Maize Products etc.

India does not import any of the native starches. However, historically up to 25 percent of primary starches were exported as of 2016. The major export destinations are the African and the Middle-East countries. Some of the factors which will determine the success of the starch players in India are: fairly reliable supply of raw material; loyal distributor base; good control over supply chain; proximity to clients; and better R&D facilities to cater to the ever growing demand for food and non-food products.

Demand

Starch Industry in IndiaThe demand for starches and derivatives looks very promising in India as all the major user segments of starches and derivatives are showing near double digit growth in their production. The major users of starches and derivatives are food, textile, paper and pharma sectors.

The textile sector is one of the oldest industries in the Indian economy dating back several centuries. It is also one of the largest contributors to India’s exports with approximately 11 percent of total exports. The Indian textile industry, currently valued at around INR 7265 bn ($110 bn), is expected to reach $225 bn by 2021. The industry contributes about 5 percent of India’s GDP. Starch is an important raw material for the textile industry, with applications in sizing, finishing and printing. Approximately 80 percent of the starch used in textiles is in sizing and minor quantity of starches are used in garment finishing.

According to the Indian Paper Manufacturers Association (IPMA), India is the fastest growing market for paper globally and is an attraction to the international players. The Indian paper industry is one of the most important industries in terms of socio-economic development of the country. Paper is one of the key segments with industrial starches and cardboard paper using significant quantities of primary and modified starches, actively and in processing. With increasing capacities for paper production, the demand for native/primary as well as modified starch is expected to grow in the future due to their wide usage and lack of low cost substitutes.

The pharmaceutical industry in India is expected to grow at a CAGR of 15 to 20 percent till 2020. The demand for native and modified starches in the industry is forecast to grow at a promising rate of 8 percent p.a. as the pharmaceutical sector is growing at a healthy rate.

The most interesting and promising of all the sectors is the high value food processing industry where the demand for starches and derivatives is in a nascent stage, but strong. The Indian food processing industry has been one of the most prosperous sectors in India in the last few years. This industry has been attracting the attention of both the government and investors and is promising to be a high growth and high ROI sector due to its immense potential for value addition. The Food Processing Industry contributes 32 percent of the total value of the food market in India and is currently growing at 10 percent per annum. This sector is identified as one of the priority sectors by the Government of India under the national manufacturing policy. The demand for starch in food is increasing by 20 percent with frozen food being the dominating segment; the use of starch in noodles and soups is also increasing, use of starch in masala is also a key contributor. In mid-2016, Food Safety and Standards Authority (FSSA) changed the legislation for the usage of modified starches in foods. As per the new legislation, the dosage of modified starches in processed foods can be GMP (Good Manufacturing Practice) instead of the earlier dosage limit of 0.5 percent. This modified starch regulation revision will not only result in an increase in the dosage of the ingredient in current applications but pave way for new applications, which in turn is expected to affect the starch demand positively.

F1rst will once again conduct an in-depth analysis of the supply and demand for starches and derivatives in India by mid-2017. Giract, the Swiss business associate of F1rst, has extensive experience in this sector. The new Indian study will be published in Q3 2017. Please write to me at bibek@firstmr.com, and I will be able to provide all the details on this study on one of the most interesting sectors in one of the most dynamic countries.


* Bibek (Bibekananda Chelleng) is the head and marketing in Firstmr Business Analytics. He has worked on several projects in the starch, dairy and the soy oil (Bangladesh) field. He has over 8 years of experience in manufacturing industry with expertise is business development and process simplifications. Contact details: bibek@firstmr.com

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