Foreign Foods a Complex Concoction
Economics and demographic opportunities are in a face-off with regulatory and infrastructural bottlenecks in the imported food business.
The manner in which a country already populated by an incredible variety of cuisines is absorbing even newer ones continues to fascinate me. Today, modern retail shelves are stocked with pastas, while olive oil is extensively advertised on television. Fruits are sourced from different parts of the world and are expected to be available all year round (seasonality is a thing of the past). Dried herbs, earlier brought in by friends on trips out of the country, can now be easily purchased, even in fresh form. Cheese no longer means only Amul and since Chinese cabbage become a must-have item?
Contributing to this is the fact that India enjoys a very young demographic profile, has a huge surge of urbanisation going on and is experiencing a dramatic rise in disposable incomes. Young people with money on hand, greater exposure to the world around and a willingness to experiment have dramatically driven up the demand for imported foods – both processed and ingredients. This has led to an overall compounded growth rate of 14 percent over the past 5 years. Some categories, like chocolates, fruits, nuts and preserved foods have grown at over 20 per cent per annum for the past three years or more. The largest categories continue to be edible oils and vegetables, which today account for almost 80% of total imported food spends.
In urban, upmarket centres, imported foods can take up to 2o per cent of shelf space in modern trade channels. All in all, imported foods are estimated to touch revenue $3 billion (Rs 18,000 crores) by 2015. However, the potential for sourcing food from other countries, based on taste and superior or more specialised production capabilities, is hampered by various challenges impacting the industry.
Tricky Path to Prosperity
Rapid growth rates have put a strain on supply chains in a country that tends to be reactive by nature and not very good at introducing change. The biggest operational challenges faced by the industry are predictability – of both demand and supply. Retailers contacted for this article say that being able to forecast demand and to supply it is a challenge. These foods are not yet mainstream enough to generate steady demand. Supply side predictability is also low, affected by long lead times, size of consignments and delays in delivery schedules. On the other hand, it is difficult to maintain adequate inventory, given the shelf life of products and the cost of holding excess inventory.
Import channels are also restricted – as per the Department of Commerce,
40 per cent of all food imports by sea come through Nhava Sheva port in Mumbai, while 65 per cent by air come in at New Delhi. This leads to congestion at these points. After entering the country, the consignments have to be shipped to regional markets, which are spread out across a wide area. Local transportation in a country the size of India is complex, to say the least.
Having said that, what have been particularly challenging are the regulatory issues. What was earlier a largely uncontrolled item, except for customs, has come under the scrutiny of the Food Safety and Standards Authority of India (FSSAI), which from a public health perspective, is a good thing. Among other moves, the FSSAI also undertook changes in the labelling norms for imported goods, requiring details of ingredients and date of manufacture to be included. However, these changes have to be made by manufacturers for whom the volumes in this market are significant, requiring longer transition times.
Given the staggered release and interpretation of the rules, consignments were held up and had to be re-exported in some cases leading to losses for manufacturers and importers. Consignments that are held up often get taken to courts, causing additional legal costs and delays. Clarity, transparency and advance detailing of interpretation would go a long way in simplifying the operational task of manufacturers and importers.
Operational challenges are also being intensified by customers who are getting more discerning. People are more conscious of expiry date labels. Many imported food products require a temperature controlled environment to remain usable - something that has been a challenge in a country with poor warehousing to start with and with a power situation that makes guaranteed refrigeration an expensive proposition.
Like many sunshine sectors in India’s vast economic landscape, this is an industry which has experienced a strong first run of growth. Going forward there future looks painted with both massive opportunities and long-running challenges. If policy makers and industry bodies actively push for streamlined processes and India’s the supply chain infrastructure, this is an industry poised for dramatic growth.
The author is Partner & Managing Director – Indian Operations, CGN & Associates India Pvt Ltd