Shouldn’t the Food Industry Focus on R&D?

Innovation strategy and its outcomes for firms may be different in developing countries as compared to developed countries. Thus, a study that focuses on an emerging economy like India, with a majority of the population dependent on agriculture, is of prime importance to the firm performance in the food and agricultural manufacturing industry. One such research carried out by the researchers of Birla Institute of Technology and Science (BITS), Pilani, K K Birla Goa revealed that investments in innovations have a positive effect on the growth of firms in the Indian food and agricultural manufacturing industry. Investment in R&D also enables the firms to reap benefits from externalities present in the industry. This study is the first to analyse the impact of innovation in the food and agricultural industry on a firm’s performance in an emerging economy context with the latest data.

Commenting on the findings of the research conducted, Dr Aswini Kumar Mishra, Associate Professor in Economics, BITS Pilani, K K Birla Goa, said “The younger food processing firms grow faster when they invest in R&D. More specifically, in the case of the food and agricultural industry, the import of raw materials negatively affects the firm’s growth and export intensity positively affects the growth in the case of R&D firms. Our study suggests that the government should encourage industries to invest optimally in R&D projects by providing favourable fiscal treatments and R&D subsidies which are observed to have positive effects in various developed countries.”

The Asia Pacific region (including developed and developing countries), now accounts for almost half the world’s spending on agri-food R&D. China is now outspending the US in both public and private agri-food R&D, accounting for around 23 per cent of global agri-food R&D spending. Although the scenario is in the favour of Asia Pacific and hence India, the analysis revealed that most of the core food companies in India spend the bare minimum conceivable on R&D, in comparison with their total revenue. Moreover, more than half of the food processors in the country are FMCGs and have multiple businesses contributing to their total revenue, it’s quite challenging to claim that the mentioned R&D expenditure of such conglomerates is entirely food-business specific.

There could be multiple reasons behind such low R&D investments in the food business. While commenting on a few such reasons, Pedro Andrés Garzón Delvaux, Food System Policy Economist, The Food and Agriculture Organisation (FAO) said, “The agro-food industry is very heterogeneous. There is geographical heterogeneity, for example, firms in the Netherlands or Finland spend a significantly higher percentage of output on R&D than their Italian or French counterparts. In turn, some firms in the sector are simply innovative and active in R&D. There is also heterogeneity in terms of the type of innovation: process, product, or organisational innovation. In addition, the agro-food sector is dominated by small and medium-sized enterprises (SMEs), which do little research. Moreover, most food products are rather easy to imitate, with significant R&D spillovers, which reduces firms’ incentive to invest in R&D – innovators have difficulties internalising (capturing) returns from investments.”

The global food industry giants like Nestle International (1.90), Danone (1.55), PepsiCo (0.94), Mondelez International (1.20), Tyson Foods (0.24), etc. have invested between 0.2 and 1.9 per cent of their total revenue on R&D in 2021. Having said that, the low-investment R&D scenario of food companies looks somewhat similar for both domestic and international food processing firms.

What Indian core food companies are up to in terms of R&D practices?

In FY 2021-2022, Kolkata-headquartered Britannia Industries Limited invested 0.28 per cent of its total revenue into R&D, amounting to Rs 37.12 crore. Britannia has a state-of-the-art R&D centre, expertise, and capabilities for meeting its goal of becoming a ‘Global Total Foods Company’. 

Britannia’s R&D has built capabilities to use nutraceuticals for developing functional food products and has further strengthened its capabilities in the inclusion of alternate cereals, whole grains, and millets in the product portfolio. In order to address Iron Deficiency Anaemia, the R&D team developed a tasty and affordable Iron & Folic Acid fortified biscuit delivering 50-75 per cent  Recommended Dietary Allowance (RDA) of these nutrients to adolescent girls and women.

R&D efforts have helped Britannia achieve plastic-neutral status as of March 2022. It is also working towards making bread packaging materials 100 per cent and reducing sugar and sodium by 8 per cent  and 6 per cent  respectively in its portfolio by the end of 2024. The firm invested in a state-of-the-art manufacturing facility at Ranjangaon as part of its efforts to build back-end capabilities in dairy. Moreover, Britannia brought to market several new innovations such as Good Day Harmony, 50-50 Potazos, NutriChoice Seeds, NutriChoice Herbs, and much more. 

Delhi-based one of the largest rice millers and Basmati rice exporters, KRBL Limited, invested 0.13 per cent of its total revenue into R&D, amounting to Rs 5.53 crore. The company has in place a state-of-the-art R&D unit. The R&D team of KRBL has been working in collaboration with various premier institutes in developing several new varieties of rice with innumerable benefits such as – improved yields, disease resistance, ameliorate cooking attributes, etc. Made in collaboration with the Pusa Institute, 1886 and 1667 seed varieties introduced in FY 2021-22 are backed by the positive results achieved in the R&D testing phase, the seeds would be handed over to the farmers in the FY23 sowing season. 

Further, the R&D team engaged in developing innovative and healthy rice-based agro products such as India Gate Basmola Rice Bran Oil and India Gate Amaranth. KRBL’s R&D team works closely with the Indian Agriculture Research Institute (IARI), New Delhi. KRBL has emerged as a plastic-neutral company – India’s only rice company to achieve this feat.  

Pune-headquartered Tasty Bite Eatables Limited, invested 0.70 per cent of its total revenue into R&D, amounting to Rs 2.7 crore in FY 2021-22. The company has an accredited R&D centre called Tasty Bite Research Centre (TBRC) located within the factory campus that is continuously engaged in research on new and innovative products, both for export and domestic market. New products developed at TBRC in the last 2 years contributed 14 per cent  of the company’s revenues. A total of 17 new products were launched in FY 2021-22. The TBRC team comprises global cuisine experts in culinary and food technology. To assure adherence to standards and to make the production system resilient, boost efficiency, and provide data and product integrity across the value chain, the firm uses a rigorous Tasty Bite Quality Management System (TBQMS). 

In FY 2021-2022, Ahmedabad-based Adani Wilmar invested Rs 1.8 crore in R&D with total revenue amounting to Rs 54,214 crore. The company has a product application center at Hyderabad and Kakinada for R&D of various new products. The company also leverages the global R&D of its joint venture partner- Wilmar Group. The firm’s R&D teams engage in cross-border collaborations as well as with external organisations to share knowledge and resources.

The company continues to maintain its R&D leadership in edible oils and fats. The R&D activities support increasing product offerings and portfolio expansion in ready-to-cook and ready-to-eat product segments. R&D has successfully developed and commercialised several new products under the ‘Fortune’ brand in FY 2021-22 which include Fortune Poha and Sattu. One of the first of its type in India, a product made from three edible oils, “Fortune Total Balance Oil” has been scientifically formulated to provide a balanced fatty acid profile and the optimal ratio of Omega 3 and Omega 6 fatty acids. The company has ensured that its edible oil and fats portfolio is compliant with the new trans-fat guidelines applicable from January 1, 2022. 

Amongst the top dairy companies in India, Hyderabad-based dairy firm, Heritage Foods Limited, invested 0.034 per cent of its total revenue into R&D, amounting to Rs 89.9 lakh in FY 2021-2022. The company has a robust R&D policy, advanced technology for manufacturing and processing, top-tier quality control, and a highly qualified team of 490 members in quality assurance and product development. The company carries a wide range of products like fresh milk, curd, paneer, ghee, buttermilk, UHT milk, lassi, and other dairy-based products. Currently, its products are present in 11 states. Heritage Foods introduced eight new products in FY 2021-22. 

During FY 2021-22, from a total turnover of Rs 208.08 crore, the New-Delhi-based Umang Dairies Limited spent Rs 15.02 lakh of minimal amount on R&D. Umang Dairies’ products have been well accepted in institutions and Hotel, Restaurant and Catering (HORECA) segments and the company is working on various value-added product categories to enhance offerings. The company has also added new customers in the category of institution and HORECA and continues its efforts to further expand its customer base. Further, Umang Dairies launched two new products based on changing demand patterns and consumer research. 

While sharing his thoughts on the importance of R&D in the Food & Beverages (F&B) sector, Manish Aggarwal, Director, Bikanervala Foods mentioned, “Similar to many other industries, the F&B sector relies heavily on R&D to make their products last longer and taste better. R&D in the food industry has made it possible to enhance the shelf life of food items without compromising on taste and nutritional value. In an ever-changing business landscape, standing still is no longer an option. There’s an increasing shift in focus towards holistic health driven by the consumer trend of preference towards healthy food. R&D can offer a unique opportunity for F&B companies to introduce revolutionary products that meet customer needs.”

A study titled ‘The impact of private R&D on the performance of food-processing firms’ revealed that the food-processing firms that invest in R&D tend to be closer to the efficiency frontier than those that do not invest in R&D. Hence R&D in the food-processing industry is associated with higher firm performance. Looking at the significantly low R&D spending of food processing firms worldwide, policy interventions at the government as well as firms’ end to boost the R&D of the private food sector is the need of the hour. Although the Ministry of Food Processing Industries has been rolling out various initiatives like the R&D Portal, funds, and schemes for food R&D projects, private players are yet to experience decent spending on their R&D. 

Mansi Jamsudkar


Image credit- istock

Read Previous

Startups Bet Big on Innovative Wellness Offerings

Read Next

2023 Looks Promising for Indian Millets

Leave a Reply