The Assocham-EY joint study also estimated that the market size for Indian organic packaged food is expected to cross ₹ 87.1 crore by 2021 from ₹ 53.3 crore in 2016, growing at a rate of 17 per cent. A boom in organic product market has already started and the organic food industry in 2019-20 is expected to grow at a good pace. Below are the few factors which are helping in accelerating the growth of the organic food industry:
Demographically, India is home to over 110 million babies contributing around 11 per cent of the world population with a high birth rate of 19.3 births per 1000 in a year. Parents always want to give the best to their babies, without compromising on the quality and safety aspects of the product. We can expect more brands with organic products to arrive in the coming years in the baby care category.
A few years back, there were very few organic brands and few product variants were available while now there are many brands available in Tier-I as well in Tier-II cities. With the increase in the availability of organic products to consumers is also one of the factors for an increase in the sale of organic products.
As per APEDA, the demand for Indian organic food products is on the constant increase worldwide and India exported organic products worth $515 million in the financial year 2017-18, from $370 million in 2016-17. There is a hike in organic product exports in the last year 2017-18 as well which was hiked by 35% compared to its previous year. There is a significant growth expected in 2019 and the coming years.
According to TechSci Research Private Limited report, global organic food market stood at $110.25 billion in 2016 and is projected to grow at a CAGR of 16.15 per cent, in value terms, during 2017 – 2022, to reach $ 262.85 billion by 2022. Indian organic food market is projected to grow at a CAGR of over 23% by 2023, on account of favorable government policies supporting organic farming coupled with rising land area under organic cultivation.
Online availability of organic food products and shifting consumer preference towards organic food are among the major factors expected to boost demand for organic food products in India during the forecast period. Expanding marketing and distribution channels coupled with an increasing number of health-conscious people is also anticipated to fuel organic food consumption in India until 2022.
While the organic market is growing steadily, it is still far from becoming a mass product. Currently, the organic market is also not consumer driven and only people who can afford/willing to pay the premium price are the buyers which lead to a very small percentage.
One of the major challenges that come in selling organic fruits & vegetable is the mis-management of the supply chain. It becomes difficult to fulfill demand as per requirement. There are various costs associated with procurement of organic FnV from an organic farm of other states in terms of logistics, damages and remaining stock which does not get a premium price.
High price markups for organic products than conventional products are also one of the major factors affecting the sale of organic products. While the high price is because of the cost associated with the product like procuring in bulk, the logistic cost involved in the procurement of organic products from certified organic farms and the distribution within the city increases the cost of the product.
Other factors like perishable items and their low shelf life also cause a problem. In case of organic fruits and vegetables and similar perishable items having low shelf life makes it difficult to supply the product within the time frame of their shelf life and which results in damages, returns, and remaining stock. Also, non-availability of wholesale Mandis like Azadpur market within city limits causes buyers/traders to procure it from the farm only.
Further, lack of trust in organic products of consumers affect sales and people doubt whether organic produce in India is really organic or is it really worth to buy organic products. People are buying only on their trust basis and the earlier consumer had almost no way to check/track whether the products are really produced Organically. But things are changing from the last two to three years and FSSAI has also implemented regulation and guidelines for organic foods from July 2018 and every seller has to follow labelling and other regulations to sell organic products. Also, sellers are now more transparent to their consumers and apart from certification, they are sharing test reports, farm/farmer’s details and access to farms anytime to check/visit.
As the food processing industry is gaining strong ground in India, the sector has high expectations from the government for the upcoming budget. By announcing Sikkim as the first organic state, organic farming & industry in India has received the much-required initial boost in recent years which was lacking earlier. The industry so far has completely been neglected. However, the challenges faced by the organic industry in India are tremendous.
We can expect rationalization of tax rates as that is as high as 28 per cent on some of the food products.
The government should encourage indigenous development of low-cost food-processing equipment, particularly for the micro, small and medium scale enterprises and improvement in the food value chain. The government can likely provide export incentives grant for food processing companies and big support for organic farming.
There should be an increase in the government budget for boosting investment in Food Industry. Support for agriculture infrastructure can be expected to increase. In the last year, the total outlay for institutional credit for Indian agriculture was proposed at Rs. 10 lakh crore which was up from Rs. 8.4 lakh crore from the previous year.