Apart from the freedom, what the industry and the regulator have been thrashing out in the run up to the draft is equally interesting. Up until now, the industry was driven by entrepreneurs, who are either passionate organic farmers or committed to the cause of chemical-free produce. The draft regulation will clear the way for the commercial growth of organic food on a larger scale.
“Whether what is sold in the name of organic, is actually organic or not, is not clear right now. The regulation will create an incentive for certified organic food producers to enjoy credibility. And kick in a generic penal provision of jail terms and fines for those who make misleading claims,” says Pawan Agarwal, CEO of the FSSAI.
Agarwal was pushed to create such a law when industry representatives convinced him that there was a real need, through multiple interactions over the last few months. “Everyone (all food brands) wants to jump on the bandwagon of organic food. We want to create a robust ecosystem for consumers to get credible trustworthy organic food,” he adds.
Established food majors like Tata Sampann, ITC and Reliance Fresh have begun the spadework to tap into this segment. Although the domestic market for organic food is estimated to be at a modest Rs 1,000 crore, it’s growing rapidly at 30% annually, and is projected to treble by 2020, forecasts India Brand Equity Foundation.
What is demand?
Online supermarket Bigbasket, which launched its own organic brand BB Royal in June 2016, has shown that packaged organic brands are a hit. Organic produce makes 10-15% of its online sales of agri-commodities amounting to Rs 20 crore per month. By the end of the year, it aims to sell 25% of its own brand BB Royal, exponentially expanding the entire organic food segment, says an executive of Bigbasket, on the condition of anonymity, as he is not allowed to speak to the media. The online marketplace is banking on the city dwellers’ power to pay a premium and their demand for chemical-free produce.
So far so good. But this transaction between the farmer, the brands and the consumer has glitches.
The trickiest one is that there is no easy way to identify organic food. To expand the market, all parties need airtight trust—a legal seal that differentiates the authentic organic from the fake products posing as organic at a premium price. The draft law is a start.
In a supply chain dominated by conventional food, insecticides, pesticides and fertilisers have a way of creeping in. Over time, the pursuit of increasing farm yields has adversely affected the health of the consumers and farmers. Consumers now seek alternative choices. Fakes have flooded the farm-to-fork supply chain, which though nascent in India, is celebrated in the developed countries for its health benefits, flavour and fair trade. Building a level of trust between the farmer and the consumer—separated by the urban-rural divide—is the most critical ingredient in this industry. The success of the current organic food companies is based on their commitment to organic farming, which has been sustained because the market, currently, is small. Can commerce-oriented companies, which are often hungry for scale, replicate the model to realise the market’s potential?
It takes guts and grit, sackfuls of them
It’s not going to be an easy task, neither for the government nor for large companies, says Balasubramanian N, CEO of Sresta Natural Bioproducts. Sresta, the market leader with over 60% market share, benefited from entering early, in 2004. The company achieved this on the back of an initial investment of $1 million from Biotechnology Venture Fund managed by Ventureast in 2006 and $15 million from Peepul Capital in 2011.
Over the years, Sresta has established contracts with 50,000 farmers, who farm over 2,50,000 acres of land. It takes a million farm visits by Sresta employees to make sure that no chemical shortcuts for high yields are allowed on these lands.
It is this grit towards organic processes of farming that has earned the company trust for over 200 products, sold under the brand name 24 Mantra Organic. The company reported that its revenue has been growing at over 50% every year for last five years and grossed 160 crore in FY16.
It’s tough to keep chemicals away from the time the seed is procured to the final product, says Balasubramanian. One small mistake by anyone involved can make the final product inorganic. How will a large company manage it?