Or­ganic pack­aged food mar­ket to cross INR 871 mil­lion by 2021

A study by in­dus­try body ASSOCHAM and global con­sult­ing firm EY says that the mar­ket size for In­dian or­ganic pack­aged food is ex­pected to cross INR 871 mil­lion by 2021 from INR 533 mil­lion in 2016.

Progressive Grocer (India) - - Contents -

Or­ganic pack­aged food and beverages is an emerg­ing niche mar­ket in In­dia and its pri­mary con­sumers are high-in­come ur­ban­ites. As de­mand for or­ganic food in the metro cities in­crease, the com­pa­nies in this sec­tor are wit­ness­ing no­table growth with the en­try of sev­eral new play­ers in the or­ganic food mar­ket, said the ASSOCHAM-EY joint re­port ti­tled, ‘The In­dian Or­ganic Mar­ket: A new par­a­digm in agri­cul­ture’.

In­dia-based Sresta Nat­u­ral Bio­prod­ucts. has emerged as the mar­ket leader, with 37 per cent value share of the pack­aged or­ganic food mar­ket and 7.8 per cent share of the pack­aged or­ganic bev­er­age mar­ket. It has in­creased its share in the or­ganic food mar­ket in re­cent years, while smaller niche play­ers have taken sig­nif­i­cant share away from it in the or­ganic bev­er­age mar­ket, adds the study.

“In ad­di­tion to the grow­ing do­mes­tic mar­ket, In­dia is the se­cond largest ex­porter of or­ganic prod­ucts in Asia af­ter China. The in­creas­ing ex­port mar­ket cou­pled with the Gov­ern­ment’s sup­port has made or­ganic cul­ti­va­tion in In­dia highly suc­cess­ful,” said Amit Vat­syayan, Part­ner, EY. In­dian or­ganic food ex­ports were es­ti­mated at US$299 mil­lion dur­ing 2015-16 with to­tal vol­ume of 263,688 MT.

The ma­jor ex­port des­ti­na­tions were the US, Eu­ro­pean Union, Canada and New Zealand. It is as­sumed that most of the re­main­ing quan­tity is sold in lo­cal mar­kets. Oilseeds com­prised half of In­dia’s over­all or­ganic food ex­port, fol­lowed by pro­cessed food prod­ucts at 25 per cent.

Ac­cord­ing to ASSOCHAM-EY study, In­dia cur­rently holds the ninth po­si­tion among 178 coun­tries that ac­tively prac­tice or­ganic agri­cul­ture. At present, the coun­try is home to more than 835,000 or­ganic pro­duc­ers, 699 pro­ces­sors, 669 ex­porters and 1.49 mil­lion ha area un­der or­ganic cul­ti­va­tion. How­ever, with only a mea­gre 0.4 per cent of the to­tal agri­cul­tural land area des­ig­nated for or­ganic cul­ti­va­tion, the in­dus­try presents ex­ten­sive scope for ex­pan­sion. Pi­naki­ran­jan Mishra, Part­ner and Na­tional Leader, Con­sumer Prod­ucts and Re­tail, EY, says, “With In­dian con­sumers’ in­creased in­cli­na­tion and aware­ness to­wards health and nu­tri­tion, the out­look for or­ganic prod­ucts in In­dia has been very pos­i­tive. Con­sumers are to­day ac­cept­ing or­ganic food and beverages as part of their daily diet, thereby, cre­at­ing sig­nif­i­cant growth

op­por­tu­ni­ties for ex­ist­ing as well as new in­dus­try play­ers in this seg­ment. With the par­tic­i­pa­tion of nu­mer­ous In­dian and multi­na­tional com­pa­nies and their ex­pan­sion in the mar­ket, In­dia is rapidly be­com­ing a production hub for or­ganic foods.”

In­dia has a re­mark­able po­ten­tial to pro­duce all va­ri­eties of or­ganic prod­ucts, ow­ing to the ex­is­tence of var­i­ous agro­cli­matic zones within its borders. The to­tal area un­der or­ganic cer­ti­fi­ca­tion was 5.71 mil­lion ha in 2015-16. This in­cluded 26 per cent cul­tivable area with 1.49 mil­lion ha and 74 per cent (4.22 mil­lion ha) for­est and wild area for col­lec­tion of mi­nor for­est pro­duce.

Among the states, Mad­hya Pradesh has the largest area un­der or­ganic cer­ti­fi­ca­tion (4.62 lakh ha) fol­lowed by, Ma­ha­rash­tra (1.98 lakh ha) Ra­jasthan (1.55 lakh ha), Te­lan­gana (1.04 lakh ha), Odisha (0.96 lakh ha), Kar­nataka (0.94 lakh ha), Gu­jarat (0.77 lakh ha) and Sikkim (0.76 lakh ha). These states had a com­bined share of 90 per cent of the area un­der or­ganic cer­ti­fi­ca­tion in 2015-16, high­lighted the study.

In terms of or­ganic crops, the com­bined share of the top 10 cat­e­gories of or­ganic food crops is around 99 per cent. The top four cat­e­gories (with a share of around 85 per cent) in­clude su­gar, oil seed, fiber and ce­re­als and mil­lets.

“Ac­cord­ing to our find­ings, metropoli­tan cities have wit­nessed a 95 per cent in­crease in de­mand in the last five years,” said Vat­syayan. “Many or­ganic food com­pa­nies are adopt­ing the on­line route to ex­pand their con­sumer base. The brick and mor­tar or­ganic stores are usu­ally lo­cated in metro and mini metro cities. These com­pa­nies are reach­ing out to the rest of the con­sumers through on­line chan­nels,” says Mishra.

With in­creas­ing in­ci­dence of health prob­lems such as di­a­betes, anx­i­ety and stress plagu­ing ur­ban In­dia, many en­trepreneurs are ven­tur­ing into the area of or­ganic café and mar­ket­place.

Ben­e­fits of or­ganic prod­ucts

The con­sumers are in­creas­ingly be­com­ing aware of the food safety is­sues and en­vi­ron­men­tal is­sues be­cause of their in­creased con­cern about health, the

en­vi­ron­ment’s health and its global im­pli­ca­tions. Or­ganic food now has be­come a vi­able al­ter­na­tive for an in­creas­ing num­ber of con­sumers, who are wor­ried about the pres­ence of chem­i­cals residue and the nega­tive con­se­quences on the en­vi­ron­ment caused by in­ten­sive production meth­ods. Many farm­ers also now see or­ganic farm­ing as a way to sta­bi­lize or even in­crease their in­come due to public pol­icy sup­port and grow­ing mar­ket de­mand. The ben­e­fits of or­ganic prod­ucts are three­fold as sum­ma­rized be­low:

Health: Or­ganic agri­cul­ture reg­u­lates how food is grown and pro­cessed. In ad­di­tion to meet­ing the health and safety re­quire­ments of con­ven­tional food, or­ganic food must also meet the ad­di­tional safety stan­dards of or­ganic farm­ing such as tougher reg­u­la­tions on ma­nure use. Stud­ies have shown that or­ganic food con­tains a lower con­cen­tra­tion of pes­ti­cides as com­pared to con­ven­tion­ally grown food. Hence, there is a good rea­son to be­lieve that or­ganic farm­ing re­duces health risk. The health ben­e­fits of or­ganic prod­ucts are as fol­lows:

Toxin and Gmo-free: Or­ganic prod­ucts are the most heav­ily reg­u­lated food prod­ucts in the US. Only or­ganic prod­ucts come with a guar­an­tee that no toxic per­sis­tent pes­ti­cides, syn­thetic fer­til­iz­ers or GMOS are used in their production. Ad­di­tion­ally, no an­tibi­otics or growth hor­mones are given to live­stock. Or­ganic pro­duc­ers and pro­ces­sors are sub­ject to rig­or­ous an­nounced and unan­nounced cer­ti­fi­ca­tion in­spec­tions by third-party in­spec­tors to en­sure that proper due dili­gence pro­ce­dures and pro­to­cols are be­ing fol­lowed.

Higher nutri­tional con­tent: Re­cent stud­ies have found hat or­ganic fruits, veg­eta­bles and grains have fewer ni­trates and cad­mium and fewer pes­ti­cide residues than non-or­ganic crops, mak­ing them safer to con­sume.

En­vi­ron­ment: Or­ganic farm­ing pri­mar­ily fo­cuses on eco friendly agri­cul­ture prac­tices. It might not elim­i­nate the nega­tive en­vi­ron­men­tal im­pacts wholly, but it can help re­duce wa­ter pol­lu­tion and im­prove the soil qual­ity. Or­ganic cul­ti­va­tion pro­motes con­ser­va­tion of bio­di­ver­sity, en­hances eco­log­i­cal func­tions and ecosys­tem ser­vices.

In­dia has a re­mark­able po­ten­tial to pro­duce all va­ri­eties of or­ganic prod­ucts, ow­ing to the ex­is­tence of var­i­ous agro­cli­matic zones within its borders. The to­tal area un­der or­ganic cer­ti­fi­ca­tion was 5.71 mil­lion ha in 2015-16.

Or­ganic production in In­dia

In­dia cur­rently holds the ninth po­si­tion among 178 coun­tries that ac­tively prac­tice or­ganic agri­cul­ture. At present, the coun­try is home to more than 835,000 or­ganic pro­duc­ers, 699 pro­ces­sors, 669 ex­porters and 1.49 mil­lion ha area un­der or­ganic cul­ti­va­tion. How­ever, with only a mea­ger 0.4 per cent of the to­tal agri­cul­tural land area des­ig­nated for or­ganic cul­ti­va­tion, the in­dus­try presents ex­ten­sive scope for ex­pan­sion In­dia has a re­mark­able po­ten­tial to pro­duce all va­ri­eties of or­ganic prod­ucts, ow­ing to the ex­is­tence of var­i­ous agro­cli­matic zones within its borders. The to­tal area un­der or­ganic cer­ti­fi­ca­tion was 5.71 mil­lion ha in 2015-16. This in­cluded 26 per cent cul­tivable area with 1.49 mil­lion ha and 74 per cent (4.22 mil­lion ha) for­est and wild area for col­lec­tion of mi­nor for­est pro­duce.

The or­ganic production area in In­dia falls es­sen­tially un­der two man­age­ment sys­tems: (1) Na­tional Pro­gramme on Or­ganic Production (NPOP) and (2) Par­tic­i­pa­tory Guar­an­tee Sys­tem-in­dia (Pgs-in­dia).

There was an in­crease in area at a CAGR of 6 per cent from 2010- 11 to 2015-16 and ab­so­lute growth of 29 per cent dur­ing the same pe­riod. It is likely to grow at a rate of 8 -10 per cent till 2020.(23, 24, 25, 26, 27).

Emerg­ing trends

The key trends in the In­dian or­ganic food in­dus­try are as fol­lows: In­creas­ing de­mand for or­ganic food: The cur­rent mar­ket size for or­ganic food prod­ucts is US$533 mil­lion, ex­hibit­ing 17 per cent growth in 2015. Ac­cord­ing to ASSOCHAM, metropoli­tan cities have wit­nessed a 95 per cent in­crease in de­mand in the last five years. In­creas­ing use of on­line mar­ket­ing chan­nels: Many or­ganic food com­pa­nies are adopt­ing the on­line route to ex­pand their con­sumer base. The brick and mor­tar or­ganic stores are usu­ally lo­cated in metro and mini metro cities. These com­pa­nies are reach­ing out to the rest of the con­sumers through on­line chan­nels. Some of the play­ers that have es­tab­lished their own on­line web­site in­clude Far­m2k­itchen, Or­ganic Shop, Naturally Yours and Or­ganic In­dia. Pre­mium food re­tail chains such as Go­drej Na­ture’s Bas­ket also sell or­ganic food brands such as Nav­danya and 24 Mantra on­line. The on­line veg­etable and fruit store I Say Or­ganic sells five tons of veg­eta­bles and fruits a week and has a cus­tomer base of around 10,000 house­holds in the Na­tional Cap­i­tal Re­gion (NCR). In­creas­ing num­ber of or­ganic food restau­rants and cafes: With in­creas­ing in­ci­dence of health prob­lems such as di­a­betes, anx­i­ety and stress plagu­ing ur­ban In­dia, many en­trepreneurs are ven­tur­ing into the area of or­ganic café and mar­ket­place. For ex­am­ple, De­vang House is a fully or­ganic café lo­cated in New Delhi which or­ga­nizes the Or­ganic Liv­ing Fes­ti­val ev­ery fort­night. It also sells herbal life­style prod­ucts like den­tal pow­der and di­ges­tive ton­ics and uses nat­u­ral and or­ganic pro­duce in its menu. The Tri­dent, Gur­gaon, has a sep­a­rate or­ganic menu that uses or­ganic pro­duce only.

In­creas­ing aware­ness re­gard­ing or­ganic foods:

Many events are tak­ing place through­out the coun­try to gen­er­ate aware­ness about the ben­e­fits of or­ganic farm­ing to farm­ers. and con­sump­tion of these prod­ucts among con­sumers. For ex­am­ple, a three-day or­ganic food Mela was or­ga­nized by the In­sti­tute for Cul­tural Re­search and Ac­tion (ICRA) in Novem­ber 2015. Ad­di­tion­ally, an or­ganic food fes­ti­val Prak­trut-2016 took place in which or­ganic farm­ers from across the coun­try par­tic­i­pated and ex­hib­ited or­ganic pro­duce and tra­di­tional food recipes. The idea was to con­nect the farm­ers and con­sumers in the city.

In­creas­ing in­vest­ment in or­ganic food com­pa­nies:

A large num­ber of in­vestors are in­vest­ing in or­ganic food com­pa­nies as the In­dian or­ganic food mar­ket is grow­ing ex­po­nen­tially. Many on­line or­ganic food re­tail­ers such as Naturally Yours, Pav­i­tra Re­tail, Or­ganic Shop, Nat­u­ral Mantra and Na­ture land

The con­sumers are in­creas­ingly be­com­ing aware of the food safety is­sues and en­vi­ron­men­tal is­sues be­cause of their in­creased con­cern about health, the en­vi­ron­ment’s health and its global im­pli­ca­tions. Or­ganic food now has be­come a vi­able al­ter­na­tive for an in­creas­ing num­ber of con­sumers.

Or­gan­ics food have at­tracted in­vestors aplenty. Mum­bai based on­line or­ganic food brand Naturally Yours has re­cently raised funds from an­gel in­vestor San­jay Me­hta. With this in­vest­ment, Naturally Yours plans to ex­pand into new prod­uct cat­e­gories and in­crease the prod­uct range.

In­creas­ing re­tail shelf space for or­ganic prod­ucts: The in­creas­ing de­mand for or­ganic food has led to an in­crease in its re­tail shelf space in or­ga­nized re­tail stores across In­dia. To in­crease the pen­e­tra­tion of or­ganic food, com­pa­nies are in­tro­duc­ing new types and va­ri­eties of or­ganic food items. For in­stance, in March 2016, an or­ganic food mar­ket was in­au­gu­rated in Gang­tok that has 17 out­lets al­lot­ted to farm­ers at­tached to self-help groups (SHGS) and farm­ers’ clubs from Sikkim.

In­tro­duc­tion of new prod­uct cat­e­gories and va­ri­eties: Many or­ganic food com­pa­nies are com­ing up with new prod­uct cat­e­gories and va­ri­eties to pro­vide con­sumers with suf­fi­cient choices. Apart from fruits, veg­eta­bles, teas, pulses and spices, com­pa­nies have also in­tro­duced ready-to-eat snacks, cook­ies, medic­i­nal plants and herbs, and juices. Ad­di­tion­ally, in­creased or­ganic al­ter­na­tives can be ob­served in es­tab­lished prod­uct cat­e­gories.

Chal­lenges in the or­ganic Sec­tor in In­dia

The or­ganic farm­ing sec­tor in In­dia is en­ter­ing a trans­for­ma­tion stage due to an in­crease in new ven­tures that have be­gun to dis­rupt the mar­ket with their one-of-a-kind of­fer­ings. In an ef­fort to pro­mote a health­ier life­style, these play­ers are play­ing a piv­otal role by pro­vid­ing con­sumers with whole­some or­ganic pro­duce. Since the or­ganic food seg­ment is still at a nascent stage in In­dia, both the Gov­ern­ment and pri­vate play­ers need to de­velop a strong pol­icy frame­work that can ben­e­fit all in­volved. The or­ganic farm­ing in­dus­try in In­dia holds im­mense po­ten­tial to grow, pro­vided it re­ceives steady in­vest­ment and ben­e­fits from both ex­ist­ing and new ini­tia­tives like in­cen­tiviz­ing or­ganic cul­ti­va­tion, food pro­cess­ing, cer­ti­fi­ca­tion and reg­u­la­tory ease and tax ben­e­fits.

Op­por­tu­ni­ties and so­lu­tions for or­ganic mar­ket growth

De­spite all gov­ern­ment ef­forts to boost production, there are sev­eral chal­lenges that re­main and are mostly re­lated to value ad­di­tion and mar­ket­ing of or­ganic prod­ucts. The com­pa­nies need to bear the cost of ag­gre­gat­ing pro­duce from small farm­ers and trans­porta­tion and han­dling costs; bear losses on ac­count of per­isha­bil­ity, qual­ity and re­jec­tions; and main­tain a buf­fer mar­gin for qual­ity vari­a­tions and dis­ag­gre­ga­tion to reach out to re­tail points. The ware­hous­ing pro­to­cols and prod­uct man­u­fac­tur­ing pro­to­cols are even strin­gent in terms of fu­mi­ga­tion dur­ing stor­age, use of preser­va­tives and added in­gre­di­ents while man­u­fac­tur­ing. The pack­ag­ing re­quire­ment for or­ganic is also strin­gent, wherein nat­u­ral pack­ing ma­te­ri­als are to be used, which in­creases the cost of pack­ag­ing. All of the afore­men­tioned fac­tors con­trib­ute to high op­er­at­ing costs com­pared to con­ven­tional prod­ucts and lead to high price mark-ups. In ad­di­tion, most of the high in­cre­men­tal pric­ing is made up of taxes as it is con­sid­ered as rich man’s pur­chase and there­fore taxed heav­ily. The higher price acts as a bar­rier and re­frains many con­sumers to choose or­ganic prod­ucts; there­fore, the bulk of sale is re­stricted to metro cities and su­per­mar­kets. The value chain also re­mains frag­mented be­cause the es­sen­tial com­mod­ity act could be in­voked any time in any com­mod­ity ren­der­ing large-scale in­vest­ments in stor­age and in­fra­struc­ture which other­wise is un­avail­able. There­fore, in­no­va­tive so­lu­tions to op­ti­mize scale and main­tain prof­itabil­ity for or­ganic prod­ucts are re­quired. Some so­lu­tions for value chain development, sup­ply chain man­age­ment and im­prov­ing cer­ti­fi­ca­tion pro­cesses are as fol­lows:

Many or­ganic food com­pa­nies are adopt­ing the on­line route to ex­pand their con­sumer base. The brick and mor­tar or­ganic stores are usu­ally lo­cated in metro and mini metro cities. These com­pa­nies are reach­ing out to the rest of the con­sumers through on­line chan­nels.

Or­ganic sec­tor value chain development

Com­pre­hen­sive value chain development can cut down op­er­a­tion cost and make the or­ganic mar­ket prof­itable and scal­able while bring­ing down the cost of cul­ti­va­tion si­mul­ta­ne­ously. The prob­lems in the value chain and prospec­tive so­lu­tions can be un­der­stood through the 4V frame­work de­vel­oped by EY. This frame­work deals with the prob­lems at each stage, namely:

• Production

• Har­vest­ing and col­lec­tion

• Pro­cess­ing and pack­ag­ing

• Mar­ket­ing dis­tri­bu­tion

Re­struc­tur­ing or­ganic sec­tor and bring­ing re­forms

A do­mes­tic mar­ket seg­men­ta­tion in­clud­ing mass or­ganic prod­ucts, mid-seg­ment or­ganic prod­ucts, and pre­mium or­ganic prod­ucts can bring the much­needed fo­cus in or­der to cater to the large con­sumer base. E-com­merce plat­forms are new driv­ers of growth in the or­ganic mar­ket and can be ex­plored more ag­gres­sively. Al­though the Gov­ern­ment has been en­cour­ag­ing or­ganic cul­ti­va­tion through var­i­ous poli­cies, there is a need to have state-level or­ganic poli­cies and or­ganic cells to mon­i­tor or­ganic production. At the same time, the Gov­ern­ment needs to steps up its ef­forts to dis­cour­age the use of fer­til­iz­ers and pes­ti­cide by in­cen­tiviz­ing and pro­mot­ing the use of biofer­til­iz­ers and biopes­ti­cides to de­crease the cost of cul­ti­va­tion.

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