Can India Trust Organic Food? Startups On The Health Food Challenge

If colonisation led to India losing its exotic spices, globalisation has led to a shift in the dietary consumption from local produce to high-calorific western food, in a phenomenon called the nutrition transition. While the consumption of such nutrient-poor diet may have led to flourishing fast food businesses, it has badly affected India’s food supply chain.

For more than two decades Indian farms have been focussing more on fertilizers and pesticides to cater to the changing dietary needs than to the long-term impact of that on production. This has led to a huge depletion of soil nutrients, so much that it will take decades to completely replenish it.

Taking baby steps towards healthier consumption, and thereby mitigating global warming issues are India’s organic food startups.

The growth in the Indian ecommerce sector and boom in the startup ecosystem has helped health food startups reach more customers without having to spend on infrastructure. Increasing income and improvement in the standard of living are also driving growth. According to a study by ASSOCHAM-EY joint report, the organic products market in India is expected to touch INR 10K Cr-INR 12K Cr by 2020 from the current market size of INR 4K Cr in 2019.

Within the organic food market, the organic packaged food and beverages is an emerging niche market in India and its primary consumers are high-income urbanites. According to the above report, the market size for Indian organic packaged food is expected to cross INR 87.1 Cr by 2021 from INR 53.3 Cr in 2016.

While these startups have been trying to revive the situation by offering organic or healthy food, it’s essentially about convincing Indians to consume food that was primarily consumed two decades ago, albeit the price component in modern brands is noticeably higher.

As the awareness towards pesticide-free food products increase, the players in this organic food sector are witnessing directly proportional growth. The government has also been insisting on the need for a quick shift towards organic food and organic farming through its budgetary allocations. The government offers schemes such as National Mission for Sustainable Agriculture, National Food Security Mission and Rashtriya Krishi Vikas Yojana (RKVY) for farmers taking up organic farming methods. However, in a price-sensitive market like India, how smooth will the transition to organic food be?

Depleted Soil, Multiple Certification And Other Challenges

Usage of pesticides has completely depleted the soil nutrients, robbing it of the life it had and as a result, the soil carbon has dropped drastically. Even if farmers decide to go organic, there is a lot of effort that they need to put in to revive soil nutrients to a state where it is capable of sustaining life naturally and warding off diseases without chemical fertilisers or pesticides. For a sustenance farmer who is always one harvest away from bankruptcy, this is not just a tough ask, but next to impossible.

“Since most consumers today are very aware about what they eat, there is a lot of jargon thrown around in the air. Everyone claims to be growing organic as they want to be a part of the bandwagon,” Sunith Reddy, cofounder of Beforest Lifestyle Solutions told Inc42.

“So for a consumer, it’s tough to sort out the fake from the real. Establishing that trust with your consumers is a big challenge,” he added.

Founded in 2018 by Reddy, Shaurya Chandra and Sameer Shisodia, Beforest is a community-led food organic food startup that brings together multiple stakeholders aimed at cocreating and crowd-funding unused suburban landscapes. The Hyderabad-based startup acts as an incubation center for farmpreneurs by giving them a chance to redefine rural living and farming.

Currently, multiple certifications are available for organic food products and this makes it challenging for startups to brand their products. Startups can choose from FSSAI, BRC/FSSC, IEC, NPOP/NOP USDA organic, India Organic issued by APEDA, IMO, PGS, JAS among others, and most of these are expensive certifications. In addition, quality certification such as ISO 22000/FSSC/BRC is also important for food safety purposes. This leaves customers confused and adds little faith in many organic food brands.

Participation in organic trade fairs is also very expensive for startups, as support or subsidy seems to be only available to a few companies.

“There are a very few genuine organic companies that directly work with grower groups,” said Ekta Jaju, founder of Onganic.

“The organic industry needs high seasonal working capital to be able to buy and store produce for the year. Its next to impossible to convince commercial banks or PSUs to lend,” Jaju adds.

Onganic is a Kolkata-based organic social enterprise startup that works directly with organic small farm holder-certified grower groups through a seed-to-shelf model. Onganic was incubated by IIM Calcutta Innovation Park and founded in 2015. Its investors include IIMCalcutta Innovation Park, Truvalu Netherland and UnLtd India.

These startups find it very difficult to acquire high retail margins in a market like India where there are multiple alternatives available.

“For the company to grow and prosper it is essential that the profits should be high and their show be minimisation of acquisition costs,” Amit Goel, founder of Delhi-based National Food and Beverages, told us.

However, these herbal formulations are actually high-valued items and there can be no compromise on the quality.

Catering To The Price-Sensitive Indian market

The price of products highly affects the buying behaviour of consumers in India. In fact, for most people in the country, the price is a very important determinant that affects their purchase. It is very ironic that the very price premium that is being placed on the organic food for its goodness is making it too expensive for local villages and small towns to buy. So good organic produce finds its way to the metros and cities alone, as it is too expensive for a villager to buy.

Beforest’s Reddy shared a classic example of the ragi or millet crop in Karnataka. “Suddenly with people waking up to the goodness of millets, organically grown ragi has a huge demand in the city. As a result, what was a staple constituent of the diet in rural Karnataka is slowly but steadily being replaced by what is cheaper.”

So following the traditional supply chain does not work for these startups as they can end up with the same old markups and to make organic produce affordable, these startups are re-thinking the supply chain completely.

Beforest follows a peer-to-peer model wherein each collective farm run by the company is owned by a community of 50+ members. Each of these members is a brand ambassador of the brand as it is their farm. The startup has a latent community of about 200-300 members each of whom has a network of another 50 people.

“Our produce goes straight from the farm to their tables at a price they would anyways pay for these commodities in the traditional markets. It works for us as we are avoiding all the markups in the traditional supply chain. More importantly, since each of the members know what happens at their farms, that knowledge and trust is communicated word of mouth to our consumers,” Reddy told us.

Companies dealing with some organic food products like rice, wheat, however, have an edge over others as consumers across the country are more and more willing to pay higher for these products. These are thus called specialty premium segments which allows startups to pay higher prices to farmers as well.

“It is very tough in a country like India to challenge the price sensitivity. We challenge this by educating consumers about the products and its production. We actually have a separate team that focuses on educating and enlightening the people what the products are about. This factor really build-ups the brand image and instills trust in the consumers about its authenticity,” added National Food and Beverages’ Goel.

From ‘Good To Have’ To ‘Must Have’

Half a decade ago, organic produce was the resort of the few who could afford it and hence it was considered a good-to-have commodity in the kitchen. Now, an increasing number of people not only buy organic produce but also demand to know the source of the produce. “This is a step in the right direction because how can you really trust what the package is saying,” said Reddy.

With business models like community supported agriculture (CSA), consumers are slowly getting to know where their food is coming from, thereby having the confidence to go for organic products. The perception of ‘good-to-have’ is slowly changing to ‘must-have’. However, it is a slow transition.

“Indian consumers, especially in Tier 1 cities are aware about organic food, but the trust is low. Also high price (pushed up due to high dealer distributor margins) is a big deterrent,” said Onganic’s Jaju.

Other countries have a very strategic approach in organic international markets, where they promote regional specialities and gain a strategic advantage.

“Many countries advertise well. India lags behind in marketing, despite a good collection and advantage,” Jaju added.

The lack of awareness among consumers regarding formulations and efficacy of products is another barrier. “Consumers are generally after the products and produce that are well marketed. It is essential for people to research and get hands-on products that are result-oriented. Lack of awareness about the products is a challenge,” Goel told us.

There are multiple organic startups in the country, working in retail or bulk segments. Experts feel the bulk segment is more stable, and potential in export markets is good. There is a high demand for organic products in the US, Europe, Canada and Australia.

“Organic is a broad word. There are umpteen different ways of growing food without using synthetic fertilizers and each methodology has its merits. But if we talk about the strength of food grown without using synthetic fertilizers and pesticides, then it’s poison-free food,” said Reddy.

India offers great diversity and high quantum of production. Since the country can grow almost all kinds of produce including cereals, pulses, spices, oil seeds, fruits and vegetables. India can also support the supply of high volumes and the response to these startups has been surprisingly positive.

According to a TechSci Research report, India’s organic food market is anticipated to grow at a CAGR of over 25% during 2016-2021. The reasons cited are increasing use of synthetic chemical fertilizers and pesticides in non-organic products that lead to various health issues such as cancer, obesity and birth defects. The report also says that organic pulses and food grains dominated demand for organic food in the country in 2015 and the segment is anticipated to continue dominating the market through 2021.

However, the choice of multiple certification processes and the differential pricing or affordability factors bring big gaps for consumers and brands. One consumer told us, “I’m ready to pay a little more for better quality, but I need to know if it is worth it.”

That sums up the biggest threat to the industry — the lack of trust.

Data Sources: TechSci Research report, ASSOCHAM-EY joint report, APEDA

Update | 10:30, March 13, 2020