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.
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).
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:
• 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.