India

Market Development and Access Strategy 2011/2012

India represents a market of substantial potential but as yet a largely unrealised opportunity for Victorian agri-food exporters. With the second largest population in the world (1.2 billion people), a growing economy, increasing middle income population, and expanding organised retail sector, India is a development market with attractive future prospects.

The Agri-Food Sector

The Indian market differs markedly from region to region, and from city to city. Culture, food habits, living standards, and languages vary greatly and it is widely recognised that India comprises many individual markets rather than one large homogenous market. Vast disparities in per-capita income levels exist and when compared to the size of the population of India the market for consumer ready food products is relatively small, but growing steadily.

A number of factors are driving steady growth in the purchase and consumption of consumer food products. These include:

• changes in the family structure and the role of women in the family;
• income and consumption growth at a rate faster than the world average;
• an increase in discretionary expenditure;
• increasing literacy levels;
• the gradual acceptance of processed and frozen foods as a viable alternative to fresh produce;
• the growing influence of television and international media.

To date, growth in domestic purchase and consumption of consumer food products has not translated as quickly as anticipated into increased agri-food exports from Australia to India. This has been due to a range of inhibiting factors, including high tariffs in many agricultural and food categories, complex food laws, and difficult sanitary and phytosanitary restrictions.

Despite this, agri-food market development opportunities still exist for 2010/11. In particular recent improved market access for dairy products is a strategic priority, as well as ongoing work in developing opportunities in the Indian food retail and food service sectors.

Victorian Agri-Food Exports to India

VALUE OF VICTORIAN FOOD AND FIBRE EXPORTS TO INDIA 2009/10 (A$ million)

Victorian Food and Fibre exports to India were valued at A$164 million in 2009-10. The key exports to India were animal fibre mainly wool (57%) and horticultural products mainly almonds (21%).

Challenges

India has a significant percentage of the population classified as living in poverty, with one-third of the population surviving on less than US$1 per day. While just over 50 percent of an average Indians’ expenditure goes on food, most is for basic items like grains, vegetable oils, and sugar; and little remains for value added food items.

Religion also has an influence on eating habits and, along with low purchasing power, supports a predominantly vegetarian diet.

The population of India is dispersed over an extended land mass. Indian consumers are serviced by a highly fragmented trade system consisting of over 3 million small retail and wholesale outlets, as well as market and roadside vendors, spread over many urban and rural population centres. The ability to physically deliver goods to consumers within India is a source of significant competitive advantage.

The inadequacy of existing infrastructure is a serious constraint to the efficient and effective distribution of consumer goods. Distribution of consumer food products is complicated by a number of factors including lack of adequate refrigeration, excise taxes, octroi (city) taxes, regional marketing systems, and the complexity of supply chains. In India it is not uncommon for up to six intermediaries to exist within the food distribution system.

High tariffs in sensitive agricultural categories, complex food laws, and difficult sanitary and phytosanitary restrictions also hinder access to India’s vast consumer population.

Dairy

In 2009, the Indian Government approved a new system for the health certification of Australian milk products, allowing Australian diary products access into the Indian market again. Australian dairy exports to India were worth around 6 million dollars annually in 2003, when trade was suspended after the Indian Government changed its requirements for the import of dairy products. At that time the majority of the value of Australian dairy exports to India (over 80%) was exported from Victoria. Export values of dairy products have already greatly exceeded 2003 levels and Australian exporters have developed confidence in the renewed market access to the Indian market.

Given that Victoria is the major dairy production, manufacturing and exporting state in Australia, it is appropriate to monitor the Indian Market during 2011/12, to ensure access is maintained and exports of dairy products to India continue to develop. The Indian market will also be of potential interest to providers of dairy services and technologies, such as herd management and processing equipment.

Meat

Australia does not currently have legal market access for meat into the India. While there are some cultural barriers around consumption of beef, lamb exports hold the greatest prospect into this market, particularly for food service. There are promising signs that market access may be progressing and therefore introducing Victorian exporters to these opportunities will be a priority.

Food Retailing

The ‘traditional’ Indian retail network has been developed over many decades for the distribution of food grains and basic manufactured articles such as cloth, sugar, salt, oils and soap. The ultimate point of contact with the retail consumer is typically a local ‘wet’ market vendor, a roadside ‘pushcart’ seller, or small local grocery outlets, known as ‘kirana’ stores. With over 3.5 million outlets the small neighbourhood kirana shop dominates Indian retailing for a number of reasons including proximity, service, and convenience (i.e. credit, home delivery).

Despite these factors, the face of food retailing is undergoing change in India. Initially change began with the entry of multinational consumer product companies such as McDonalds, KFC, Schweppes, Pepsi, Kellogs and Heinz in response to the opening up of the Indian economy during the 1990’s.

More recently development has included the appearance of modern supermarket outlets and chains, and convenience stores across major urban centres. The pace of change in modern retailing has been limited to some extent by Indian Government regulation of Direct Foreign Investment (DFI) in food and grocery retailing, however consensus among industry observers is that that the scale of modern retailing will continue to grow as formats and supply chains improve, and high income earning consumers are attracted by superior choice, quality, and convenience. Rapid growth and opportunity is likely in this sector when (if) the Indian Government allows DFI beyond the current ceiling of 49%.

The development of modern retail chains, especially in food retailing, provides a path to market for processed and fresh products from Victoria to reach those Indian consumers with the capacity to purchase and consume imported food. A component of this Indian market strategy will be to focus on supporting and further developing existing supply chains that deliver Australian (and Victorian) agri-food products via modern Indian retail chains.

Key Activities for 2011/2012

Monitor and support market access for red meat (lamb) into India in collaboration with the Department of Agriculture, Fisheries and Forestry (DAFF) Agricultural Counsellor and contributing to government initiatives.

Contribute to whole of government activities in gaining market within for Victorian lamb into the Indian market.

Maintain and improve contacts and networks across the Indian food production, distribution, service and retail sectors.

Contact: Mr Brian Kearns, Market Access & Competitiveness, Meat & Wool Services Branch, Farm Services Victoria. Email: brian.kearns@dpi.vic.gov.au

Sources: GTIS, USDA, CIA Worldfact Book