Indian Organic Industry
“We are what we consume”~ Anonymous.
Consumption has a strong influence on individuals, it becomes part of our identities. A large fragment of present day customers want to identify themselves as health conscious and environmental friendly. Organic products are perfect fit to such a world of consumers. It is a healthier and pro-environment solution in a current world of pollution and adulteration. It counteracts agriculture problems by restoring soil health, enhancing human health and minimizing negative impacts on the environment. This new found awareness among the customers has led to a paradigm shift from non-organic products to organic products.
India has come a long way from being a nescient about opportunities offered by organic agriculture to exploring the true potential in today’s world. Collective efforts of farmers, NGO networks, government policies, and market forces have bought organic agriculture to a stage where it can have prominent role in Indian agriculture. Though traditionally the farming in India was organic in efforts to meet the needs of expanding population major parts of the country had to adopt unconventional methods of propagation. Although this has helped to great extent to achieve our target of food security over the period of time it has rendered the soil uncultivable. In order to revive these rendered land the government is encouraging farming in those parts to organic. As an illustrative to their efforts under the latest budget the government has launched two schemes- the ‘Parmparagat Krishi Vikas Yojana’ which aims to bring 5 lakh acres under organic farming over a period of 3 years and organic value chain development in NE region, under this the focus is on value addition to the organic produce grown in the region. A sum total of Rs. 412 Cr is made available for these schemes. A major incentive of organic farming is that it is not only a greener option but also good for business. It not only fetches premium pricing for the retailers but also is advantageous to the farmers. A study on Economics of organic versus chemical farming for three crops in Andhra Pradesh (Sudheer, 2013) reveals that organic farmers are earning a gross income of 5%, 10% and 7% more compared to the chemical farmers of paddy, redgram and groundnut, and with lower input costs the profits earned by the organic farmers are higher by 37%, 33% and 59% respectively. This premium is encouraging farmers to adopt the practice of organic farming but challenges that are hampering this transition are lack of knowledge, unavailability of planting material and bio pesticides, high certification costs and high risk of low yield for conversion period. Lack of effective regulation which can differentiate the spurious products that brand themselves as organic from the authentic is another major issue. As on date there are no regulations to govern the authenticity of the organic products in the domestic market. Only Organic products exported from India are marked with the India Organic certification mark issued by APEDA. Some of the Indian companies do adhere to these standards while catering to the domestic markets but the fact that these are voluntary standards is a huge setback.
Currently India produces organic products worth Rs. 11,000 Cr out of which unfortunately only half are branded and marketed (Rs. 6,000 Cr). Domestic branded market accounts for Rs. 1000 Cr whereas the international markets make for rest Rs. 5,000 Cr. Food and cosmetic ingredient market are major contenders of the organic sector. Indian organic food market can be broadly classified as cereals, pulses, plantation crops, oil seeds, spices, fruits and vegetables. Among these F & V and oil seeds contribute the lion’s share of production whereas cereals generate major profit margins. The Indian organic food market in India is highly unorganized. Almost half of the produce is sold uncertified hence doesn’t fetch premium pricing and the other half i.e. branded market is facing turmoil due to lack of suppliers. On record India has the highest number of organic producers in the world (about 6 lakh) but this mainly due to small land holdings. This dearth of organic producers is adding significantly to demand supply gap which in turn is a prominent reason for the high prices of organic food. In order to get overcome the issue of supply major organic food retailers have adopted the backward integration policy. This helps them to ensure good quality, guaranteed quantity as well cost control. On the market side currently the distribution channels connect the organic food producers to the metros such as Delhi, Bangalore, Mumbai and Hyderabad. In these areas also the organic food products were mainly localized to major retail outlets such as Big Bazar, Spencer, More and Easy Day. Some other players such as ITC Foods, Reliance, Fab India, Godrej Agrovet and Organic India also trade in this sector. In terms of market penetration 24 Mantra has highest reach.
Another segment where Organics is growing at a fast pace is the global personal care industry. Organic personal care products are manufactured from ingredients extracted from plants, herbs and flowers under eco-friendly conditions. India has an innate geographical location which is suitable for cultivation of the unique herbs and flowers which are used to brew the cosmetic formulations. Natural ingredients have been a part of the beauty regime of Indian women since long. As time passed on the women evolved to more synthetic regime and major factors which led to this is ease of application and lack of knowledge about the ingredients. Many brands both Indian and International now have realized the true potential of ancient organic ingredients and are venturing into this space of organic beauty. They are basing their skin & hair care products on organic ingredients. These products are priced at least 40% premium and come in unique attractive packaging. These products are targeted towards the working women who have disposable income. A typical farm to face supply chain comprises famers or aggregators, processors and retailers. Some of the ingredients used cannot be cultivated and have to be collected from the forests the aggregators play a significant role in procuring them. Currently there are very few manufacturers of organic personal care products in India. Some of them are forest essentials, Fab India, soul tree, biotique, patanjali.
Looking on the current market trends and consumer preferences we can anticipate a futuristic market for organic products in India. As the purchasing power and awareness level of an average Indian increases the demand for organic products will continue to grow. This will lead to increased competition from traditional and larger retailers seeking to expand their product ranges and provide complementary organic products. The only probable constraint in this growth can be due to absence of a regulatory body which can govern and check the adherence of the standards. Implementing a regulatory framework like the one in USA (USDA-Organic) which has clear cut instructions to be implemented can help standardizing the domestic organic market. This will not only help build the consumer confidence in the products but also create a conducive industry landscape with premium pricing which will further boost the interest of the companies to indulge in this sector.
Reference: P Sudheer (2013), Economics of organic versus chemical farming for three crops in Andhra Pradesh, India, Journal of Organic Systems 8 (2), 43-45