Abstract
The purpose of the study is to identify the opportunities and challenges for the organisations that are operating in the organic food sector in India. A case study has been presented about an organisation, which is one of the leading ones in India. Based on the existing body of literature and the case study approach, the opportunities and challenges have been identified, which are country-specific. Though there have been studies conducted to emphasise the preferences of the consumers for the organic food, this study is unique as it also presents a case study of the leading organic agri-food marketer to document the opportunities and the challenges present in the sector. The study focuses on the suppliers of the organic food. The present study captures the issues of the farmers, who are growing organic agricultural products in different parts of the country, the barriers in the downstream supply chain and the opportunities in the market due to the ever-increasing demand of the consumers for the organic food.
Introduction
Agriculture has been practised for centuries, and like any socio-economic or political system that has stood the test of time, it is a product of the circumstances in which it exists. According to Foley et al. (2011), 70% of the world’s grasslands, 50% of the savannas, 45% of deciduous temperate forests and 27% of tropical forests have been cleared or converted to agriculture to maintain a constant supply towards the global food production.
In other words, it has undergone extreme changes to keep up with the opportunities, requirements and challenges of the changing world. But this has also caused a damage to the biodiversity and ecosystem as reported by Ministry of External Affairs (MEA).
In India, the agriculture system was based on traditional knowledge, almost organic and very near to the nature. However, with a rapid increase in the population, the existing agricultural practices were not sufficient to produce agro-products as per the growing demand (Singh & Verma, 2017).
In the 1960s, India witnessed the Green Revolution, also known as the third agricultural revolution. Although the Green Revolution was able to increase the foodgrain production by manifolds to feed the rapidly increasing population as the farmers adopted the technological changes to the agriculture production to meet the demands (Dholakia & Shukul, 2012), an ever increasing use of chemical fertilisers and pesticides had an adverse impact on the environment and health of the people of India.
Gradually, there has been environmental awareness among the people and it has generated an interest in organic foods (Peattie & Crane, 2005). This has enabled the organic market to expand at a decent rate (Bhaskaran et al., 2006; Thøgersen et al., 2016). As an emerging economy, India is also reportedly one of the fastest progressing countries in the world in terms of addressing environmental issues and improving environmental quality (World Bank, 2010).
Organic Agriculture and Food
Organic agriculture (OA) is defined by the International Federation of Organic Agriculture Movements (IFOAM) as
a production system that sustains the health of soils, ecosystems and people. It relies on ecological processes, biodiversity and cycles adapted to local conditions, rather than the use of inputs with adverse effects. Organic Agriculture combines tradition, innovation and science to benefit the shared environment and promote fair relationships and a good quality of life for all involved. (IFOAM, 2008)
OA is often considered more environment friendly than conventional agriculture, since chemical pesticides and synthetic fertilisers are not used (Treu et al., 2017).
The segmentation of a product as organic entails two main things: First, it is free from toxic persistent pesticides, synthetic fertilisers, growth hormones and antibiotics or Genetically Modified Organisms (GMOs). Second, stringent organic cultivation standards are followed, with respect to impact on soil, water and air to support environmental protection. These value chain considerations have resulted in organic products emerging as the responsible choice interpreted among consumers according to Food Safety and Standards Authority of India (FSSAI). 1
According to the Organic Foods Production Act, 1990, 2 ‘In terms of food that comes from living animals’ meat, eggs and dairy, the animals must not be fed antibiotics or growth hormones’ labelled as organic food. In the existing body of literature, many definitions of organic food are available. To mention a few, Klonsky and Tourte (1998) coined the term ‘natural production system’; Bhaskaran et al. (2006) used ‘green’ or ‘environmental friendliness’; FAO (1999) and Yi (2009) advocated for limited use of artificial chemicals in organic production; and Yi (2009) promoted the concept that the organic foods are improved to maintain the food integrity, instead of artificial content, preservations and irradiation.
As summarised by Paul and Rana (2012), the organic foods are conventionally safe, produced using ecologically and environmentally sound methods that do not involve synthetic inputs such as pesticides and chemical fertilisers, do not contain GMOs and are not processed with irradiation, industrial solvents or chemical food additives.
Theoretical Background
Overview of the Global Organic Industry
As researched and reported by European Environment Agency and Agencia Europea de Medio Ambiente (2010); Pollard et al. (2010); United Nations General Assembly (2000); Klonsky and Tourte (1998) and Kemper and Ballantine (2019), the current rates and methods of production and consumption are unsustainable and, if they are not changed, they will have an irreversibly negative impact on the future well-being of the society. In the existing body of the literature, it is being established that the organic food is often assumed to be sustainable (Gan et al., 2016; Magistris & Gracia, 2016; Teisl, 2011; Vega-Zamora et al., 2019).
As per a study conducted by TechSci Research, 3 the global market for organic products is growing faster (CAGR 16%) in comparison to the global markets for conventional products (CAGR 10%). This differential growth rate is observed in multiple market segments, which include food and beverages, textiles, health and wellness, and beauty and personal care, among others. The rapid growth of the organic market can be attributed to numerous factors. The increasing emphasis on good health, proliferation of consumption-related ailments, an increased awareness regarding the health benefits of organic products among consumers, enhanced income levels and standard of living, together with government initiatives aimed at promoting organic products, are key drivers of this exponential market expansion as reported by the Product Marketing Association. 4
Organic farming is practised with varying levels of success in numerous countries. It has been found to be more viable than conventional farming in the USA and the European countries due to higher yield, lower cost or higher market prices (Lampkin, 1994).The market research company Ecovia Intelligence estimates that the global market for organic food reached 97 billion US dollars in 2017 (approx 90 billion euros) as reported in the report of IFOAM, a Germany-based international organisation. 5 The report also stated that the USA was the leading market with 40 billion euros, followed by Germany (10 billion euros), France (7.9 billion euros) and China (7.6 billion euros). In 2017, most of the major markets continued to show growth rates in double digits, including India. Even the French organic market grew by 18 per cent. The main reason for the growth rate can be attributed to the growing health concerns among the consumers and increasing awareness with regard to the health benefits of organic food. Other factors such as increasing income levels, improved standard of living and government initiatives aimed at encouraging widespread adoption of organic products act as driving forces for organic food sales across the globe. The same report conveys that the Swiss have spent the most on organic food (288 euros per capita in 2017). Denmark had the highest organic market share (13.3% of the total food market). The increase in demand has led to a considerable increase in the area subject to organic management techniques globally, surging from 11 million ha in 1999 to 69.8 million ha in 2017, as per the above-mentioned report. The wild harvest and other non-agriculture organic collection area also increased to 42.4 million ha in 2017 from 4.1 million ha in 1999. The three countries with the largest area under organic cultivation are Australia (35.6 million ha), followed by Argentina (3.4 million ha) and China (3 million ha). The three countries with the largest wild harvest area for organic products are Finland (11.6 million ha), followed by Zambia (6 million ha) and Tanzania (2.4 million ha). In 2017, 2.9 million organic producers were reported, which is 5 per cent more than in 2016. India houses the highest number of organic producers globally with 835,200, followed by Uganda (210,352) and Mexico (210,000). Therefore, it occupies a robust position in producing organic products, having already exported 1.35 million MT of certified organic food products worth ₹1,937 crore in 2015-–2016. The exports are largely concentrated around the USA, Europe, Canada, Japan and the East Asian and East African markets.
Overview of the Indian Organic Industry
India’s progress in the organic sector has been incredible. Major organic produces in India include plantation crops, that is, tea, coffee and cardamom; spices, that is, ginger, turmeric, chillies and cumin; cereals, that is, wheat, rice, jowar (a kind of millet) and bajra (a kind of millet); pulses, that is, pigeon pea, chickpea, green gram, red gram and black gram; oilseeds, that is, groundnut, castor, mustard and sesame; fruits, that is, banana, custard apple and papaya; and vegetables, that is, tomato, brinjal (eggplant) and other leafy vegetables, besides honey, cotton and sugarcane, especially for jiggery/molasses (Planning Commission, 2001).
Furthermore, India is the largest exporter of organic cotton and houses the largest number of organic producers in the world. Alongside the developments pertaining to the global markets, the domestic markets are growing at a rate higher than the global average and were expected to keep growing at a 25 per cent CAGR through 2020. India has substantial potential for expansion of OA owing to many factors, including favourable agro-climatic conditions. Hilly and rain-fed areas of the country such as the North Eastern Region and Deccan Plateau traditionally practise low-input agriculture and are therefore more amenable to the switch to OA. In addition to that, areas that have been subject to intensive agriculture and excessive use of chemical substances present a scope for expansion of OA. This would help improve and preserve the soil quality and thereby increase production in the long run. The rise in per capita purchasing power, accompanied by the increase in awareness regarding the social, environmental and health benefits of organic products, has not only increased the demand for such products but also incentivised the development of the organic value chain, as evidenced by continuous developments in industries such as e-commerce, supply chain, storage and processing.
In the food market segment, oilseeds comprised half of India’s overall organic food export, followed by processed food products at 25 per cent as documented in the Annual Report of Agricultural & Processed Food Products Export Development Authority (APEDA) (2015–2016). The organic food market in India is at a nascent stage of its development; most of the produce is exported to developed countries (APEDA, 2014). The domestic market for organic products is limited to mainly in the big cities of India, and the market was anticipated to grow at a significant rate of 40 per cent–45 per cent in 2014–2017 (Nandi et al., 2017; Oswald, 2013). Currently, the market for organic agribusiness has crossed ₹2,500 crore, and the global trade is today at US$69 billion (approx ₹360,000 crore; ICCOA, 2014). Presently, in India, fruits and vegetables are the highest demanded organic food categories (Nandi et al., 2017).
India is having the highest number of organic producers in the world (Willer et al., 2013), and the majority (>80%) of them are small and marginal (<2 ha; Dev, 2012). Smallholder farmers are being excluded from the export organic supply chains (Singh, 2009). Thus, the option left for smallholder farmers is the domestic market to sell their produce. In India, there are over 15,000 certified organic farms, and the number is growing fast over the years (Kumar & Ali, 2011). To date, there are more than 181 organic retail outlets in Bengaluru alone (Devakumar, 2014). These organic retailers are not organised, and there are substantial differences in their pricing of the products. Despite this growth potential, one of the hindering factors for organic consumers is the high price for organic products. As reported by Dholakia and Shukul (2012), in an organic consumer survey in North India, 71 per cent of the respondents cited high price as an obstruction to buying organic products. They expressed that the future of OA would, to a large extent, depend on consumer demand and their motive to pay an extra price for organically grown foods.
Having recognised the untapped potential, both government and private actors have increased their involvement and investment in the sector. The government has allocated ₹2 billion for the cultivation of high-value major agricultural produce and ₹5 billion to promote farmer-producer organisations for Operation Green. In addition, the government intends to promote farmer-producer organisations and village-producer organisations in large clusters under various schemes launched by the Government of India. This has also been linked to the National Rural Livelihood Mission to enable self-help groups to partake in organic farming techniques.
The Government of India and the state governments have taken steps to improve the regulatory framework of organic products along with rolling out several schemes to incentivise organic farming. On the regulatory front, FSSAI, in December 2017, had recognised both the certification systems (National Programme for Organic Production (NPOP) and Participatory Guarantee System of India (PGS-India)) valid for organic food products. This provides an impetus to both promote and regular markets so that the domestic customers and export countries can trust Indian organic products (APEDA).
To facilitate organic farming, 11 state governments (Kerala, Karnataka, Andhra Pradesh, Sikkim, Mizoram, Nagaland, Himachal Pradesh, Madhya Pradesh, Gujarat, Rajasthan and Odisha) came out with their own state organic farming policies, and Sikkim became the first state to be declared as an organic state in 2016 with 75,000 ha under organic cultivation, thereby providing impetus to other states to pursue similar objectives. Meghalaya, for instance, aimed to make the switch by 2020. Many other states such as Chhattisgarh and Uttarakhand are also promoting an organic marketplace wherein producers and consumers can directly interface. With all these initiatives, it is expected that the cost of cultivation will come down, and productivity will improve significantly. This will result in creating further demand, as the prices of organic products for mass consumers will be lowered. 6
Challenges Faced
While a steady growth is observed in the organic market, it is far from becoming a mass product. The key challenge the sector faces is in higher cost of cultivation and its subsequent value chains, leading to high price markups. The market segmentation focus is also on affluent consumers. Hence, there is a clear need to put special efforts in bridging the gap between production and the supply chain to reach the masses according to FSSAI.
Despite the enabling environment created by a culmination of the aforementioned factors, there exists several challenges for all the stakeholders involved at every stage of the value chain. Producers of organic products are continually struggling to optimise the scale of their operations while taking in consideration the measures to maintain and increase their profitability. This is primarily because of the voids in the regulatory framework for organic products in India. In addition to the procedural challenges pertaining to certification and quality assurance, the increasing costs of inputs and the elongated conversion period from conventional to organic farming are a few of the key challenges faced by the producers, most of whom are small or marginal farmers. The processors of organic food products, on the other hand, face significant resistance in the form of lack of adequate post-harvest facilities for organic products.
Several measures need to be taken in order to avoid contamination and cross-contamination of the produce, and the infrastructural capabilities of the country often prove to be inadequate. The marketing of organic produce comes with its own set of questions and challenges which are related to global competitiveness and differences in global and national quality standards. Even though there has been a remarkable improvement in the level of awareness regarding organic products, many consumers are unaware of its benefits, therefore providing no incentives for the increased supply. As a result, organic products are priced higher than their conventional variants.
Case Study on Safal: Mother Dairy
Mother Dairy Fruit & Vegetable Pvt. Ltd is an Indian company that manufactures, markets and sells milk, milk products and other edible products. 7 Its milk products include cultured products, ice cream, paneer (cottage cheese) and ghee (clarified butter) under the Mother Dairy brand. The company also sells edible oils, fresh fruits and vegetables, frozen vegetables, and processed food such as fruit juices, jams and pickles.
Mother Dairy was commissioned in 1974 as a wholly owned subsidiary of the National Dairy Development Board (NDDB). It is an initiative under Operation Flood, a dairy development programme aimed at making India a milk-sufficient nation. Mother Dairy sources a significant part of its requirement of liquid milk from dairy cooperatives and village-level, farmer-centric organisations.
The company originally focused on Delhi and other parts of the National Capital Region (NCR). It later expanded to other regions in India.
SAFAL is the fruit and vegetable arm of Mother Dairy. It operates a large number of fruit and vegetable stores in the NCR, and also has a significant presence in Bengaluru. It also has a plant in Bengaluru, which produces aseptic fruit pulp and concentrates annually. It supplies to food processing companies such as Coca-Cola, Pepsi, Unilever and Nestlé. It also has a global presence, namely in the USA, Europe, Russia, the Middle East, Asia and Africa, and exports fresh fruits and vegetables (grapes, bananas, gherkins, onion, etc.), fruit pulp and concentrate, frozen fruits and vegetables, etc. 8
For the purpose of documenting the case study, the information was gathered by interviewing one of the senior officials in SAFAL, Mother Dairy, which is a leading brand in the Indian organic market. The conditional consent was received after promising to keep the identity anonymous. A summary of the discussion is being produced in paragraph form.
It has been more than 25 years that SAFAL has started the business of fresh fruits and vegetables. The proposal for growing organic food was laid a couple of years back from now, and they had entered into the organic market in the month of December 2018. The primary reason of the organisation behind venturing into Indian organic market was to cater to the huge demand by the consumers for the organic products. The second reason was to provide market accessibility to the farmers and at the same time encourage them to shift to the organic farming. This is a situation when the farmers are caught into the debt cycle because of the financial burden caused by purchasing pesticides and chemicals for growing crops conventionally.
The company deals primarily with the products such as fresh fruits and vegetables. Apart from this, frozen products also constitute a small percentage of the foods been sold. In Delhi-NCR, Mother Dairy has around 400 Safal booths which have a sale on average of 200 tonnes per day of food products, thereby making Mother Dairy a market leader, followed by the Reliance, which has 40–50 stores in Delhi-NCR and a sale on an average of 75 tonnes per day of food products.
The organic food is majorly divided into two segments, that is, fresh organic fruits, vegetables and organic products, including grocery and beverages (e.g., ginger tea and tulsi (basil) tea). SAFAL, on the one hand, has 20 kinds of foods that come under the fresh category and, on the other hand, had 40 kinds of grocery food items which come under the product (not fresh) category.
Currently, out of the 2,200 farmers, approximately 10 per cent are growing fresh organic fruits and vegetables, and the rest 90 per cent are growing packaged organic products. Farmers growing fresh fruits and vegetables are from Uttarakhand (a state in the northern part of India), Maharashtra (a western state) and Telangana (a southern state of India), whereas farmers growing organic products for packaging are from Maharashtra, Rajasthan, Madhya Pradesh and Telangana.
More than half of the organic products are majorly being imported from Uttarakhand. Pulses and sugar are being grown by the farmers from Maharashtra, honey is provided by the farmers from Uttarakhand and rest of the products are grown in Rajasthan.
A total of 500 ha of land is being used for the organic farming. There are certain practices which are designed and taught to the farmers. Also, the farmers are asked to follow those practices in order to be completely organic. Even there is a team on field which keeps a check, on a daily basis, on whether there is any violation of any norms.
Whenever an organisation approaches the farmers to shift from conventional method of farming to the organic farming, for the first three years or during the conventional period, farmers are asked to grow only conventional products. After three years, they are associated with Safal.
Although there is no storage facility to store the organic produce, however, the products are directly transported from the produce states to Delhi-NCR in specialised air-conditioned vehicles.
A separate logistic arrangement has been done to transport the produce to the market. These vehicles are completely different vehicles (do not carry the inorganic produce) in which fresh organic products and conventional agri-products are being transported from one place to another.
Société Générale de Surveillance (French word for General Society of Surveillance), a certification body, is doing its part of inspection regularly and responsibly. It is the world’s leading inspection, verification, testing and certification company. It is recognised as the global benchmark for quality and integrity.
The feedback/suggestions received from the consumers are wholly positive and boundless. The customers have appreciated the design and the way packaging is done. SAFAL is constantly trying to improve the packaging process, especially exploring different materials that can be used, apart from plastic.
The customer is also satisfied with the prices, as has been decided by the organisation. The quality of the products is highly appreciated, and it is one of the reasons behind the increase in demand of the consumers.
However, the most challenging issue is faced in terms of non-availability of the product, as many of the products went out of stock in the first two weeks of business.
At present, only 2–3 per cent of the consumers are consuming the organic produce; however, there is a gradual increase in the demand. A majority of the consumers prefer to consume conventional products.
The sky is the limit, as there are ample opportunities to grow in the Indian organic market. The company wishes to expand and launch its stores in six other states of India in order to get fresh fruits and vegetables available to others as well.
One more challenge is to compete with those who are selling the organic fruits and vegetables unpacked and therefore at cheaper prices. Even though the accountability is low, these people are selling the products at cheap prices and have higher sales in comparison to SAFAL. Creating an awareness programme to educate the consumers can help to deal with it, according to a senior manager.
Few other challenges in the area of supply chain are also major disadvantages. The present-day production is scattered across the length and breadth of the country, but the quantity grown/required is very small. Hence, it is a major challenge faced by the organisation in the Indian market. Supplementing with the data, it is stated that the current market requires a production that sums up to 25 billion for the packaged products, out of which, about 25 per cent are pulses and about 20–22 per cent are flour and rice. Spices constitute about 12 per cent. But SAFAL being at a nascent stage is producing only 0.02 billion of the packaged products.
Conclusion and Way Forward
The organic sector in India, although comparatively new as compared to the global trend, possesses inherent strengths that can be leveraged, and the current context in which it thrives offers many opportunities that can be utilised. The agricultural policy of India has gradually shifted from espousing a production-centric approach to a more holistic approach. This approach, in addition to focusing on increased productivity, factors in climatic considerations, nutritional concerns, environmental impact and standard of living of the stakeholders. The shortcomings of conventional products in relation to these considerations create a lacuna, which is being leveraged to promote OA.
The case study of SAFAL indicates opportunities and challenges that lie ahead for the organic produce in India.
A major opportunity is the constant increase in the demand for the organic produce, quality assurance and a competitive price by the players. Hence, creating an awareness campaign for the consumers and understanding their behaviour pattern to tap the infinite potential could be one of the research topics. The organic sector in India calls for the development of a public–private partnership model that aids the sector in reaching its full potential. A greater emphasis needs to be placed on the capacity building of stakeholders, easing access to finance, monitoring and evaluation of all assets and processes, as well as research and development, in order to keep abreast of global progress in the sector. Additionally, there has emerged an urgent need for infrastructural development and business climate reforms, reinvention of branding and marketing strategies and entrepreneurship development.
A new approach is needed to realise the great potential of organic food industry in India. There are various challenges at every stage of the market, which need to be addressed so as to develop the industry further. At the production level, farmers are facing problems regarding certification of their products, due to very high certification costs. There have been policies introduced to assist the farmers financially for certification and also organise them into Participatory Guarantee Systems (PGS), which is a low-cost certification method. While these are very helpful measures, these are not widespread. More farmers need to be included under these schemes and organised into farmer groups which will help them get greater access to markets where their products are demanded. Further, if organised into bigger groups, agricultural inputs might be available to them at a cheaper costs due to bulk purchasing. This will reduce the production costs and increase the profit margin. Small scale and marginal farmers find it difficult to get access to markets where their products fetch premiums. Most of the consumption is concentrated in a few cities currently, but production happens far away in the rural areas. Retail firms can help improve the market access for the farmers. Most of the organic consumers in India prefer branded products. This is an incentive for retail firms to improve the rural–urban linkages by purchasing organic produce from farmers and selling them in urban markets where the demand for organic produce is higher. There are many retailers, but awareness is pretty low among farmers and consumers both. Partnerships between the government and private retailers could prove beneficial for both parties involved as well as the farmers. More farmers will have access to better markets and get higher price premiums, which will enable them to increase their incomes. Retailers will have access to a larger quantity and variety of organic produce, which would help their profits to grow. Increase in farm incomes arising out of OA would help government policymakers to focus attention on other needs of the rural communities. Going organic will also lead to a more sustainable agriculture.
Footnotes
Declaration of Conflicting Interests
The author declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.
Funding
The author received no financial support for the research, authorship and/or publication of this article.