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promar international report
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INTRODUCTION
The Indian population represents roughly one-fifth of the global population. Many are poor and suffer deprivation. Despite this, by opening up its trade policy regime, India has attracted the interest of many seeking new investment and market opportunities in food and agriculture. Moreover, there are a number of factors suggesting more opportunities in India in the future, such as the changing trade policy climate, consistent economic growth, rapidly growing middle class, increasing urbanization, and modernization of the retail sector. Though change is relatively slow, there are clear signs of movement in the food systems and indications that the potential market is immense, and while still immature, growing rapidly.
However, consumption of confectionery products is relatively low and product penetration is still very limited. At the same time, observers have noticed opportunities for growth of the market and increasing potential for imported chocolate and other confectionery products.
For these reasons, the decision of the National Confectioners Association (NCA) to research the Indian market for confectionery products and look at the opportunities for US exporters in India seems appropriate and timely. This report aims to provide description and understanding of the Indian market. We review the general economic and commercial environment and the developing situation in the Indian market for confectionery products. We also examine the competitive market conditions and review the general prospects for US products and potential entry strategies for US exporters.
Methodology
We have used a combination of desk research and trade interviews. The core of the study has been based on personal interviews with various representatives of the trade. These gave us a very broad perspective of the market, market system, and the way it works. Overall, we had face-to-face interviews with 24 executives, as follows: 5 leading manufacturers, 13 leading importers, and 6 retailers, including major candy chain stores and supermarkets. A full list of contacts is given in Appendix 3.
Our interviews covered a wide range of issues. In particular, we gained a view of the status quo in the market, the key players, the bases of competition, and the forces for change.
1.3 Report organization
The report is organized as follows:
• Section 2 provides general background information about India;
• Section 3 reviews the Indian confectionery market by sector;
• Section 4 look at the distribution of confectionery products in India;
• Section 5 reviews the market access issues, such as tariffs and duties, food safety, packaging, and label requirements;
• Section 6 provides our conclusions and recommendations for US exporters interested in the Indian market for confectionery products; and
• Section 7 lists some important industry contacts.
Additional information is provided in the report appendices as follows:
• Appendix 1: brief description of the Indian market for sweetmeats;
• Appendix 2: profiles of the main players in the Indian confectionery market; and
• Appendix 3: list of the respondents to our trade interviews.
COUNTRY BACKGROUND
Diverse is the one word that describes India best. With an area approximately one-third the size of the USA, it is home to over one billion people of considerable economic, ethnic, linguistic, cultural, and religious diversity. Scale alone catches the attention of any company looking for opportunities of new investment or exporting. Food consumption differences between religions, regions and income strata are simply too diverse for quick and simple categorization and generalization. At this stage in the country’s development, there are relatively few food products consumed by the entire Indian population. In short, the Indian food market has several layers of complexity, which need to be fully understood by the outsider.
Figure 2: India
Despite this diversity in food consumption, some market segments in India are sufficiently large to attract the attention of companies willing to export to India or invest in the country. This section provides a brief description of the Indian economy today and depicts the diversity of India’s people in a way that can be used in later sections to determine the potential market opportunities for US confectionery products.
Economic development and reforms
Until the mid-1980s, India’s inward looking socialist-oriented economic policies gave it a minor presence on the world economic stage. Despite being a founding member of the General Agreement on Tariffs and Trade (GATT), India’s focus was mainly toward developing commercial relations and trade with the Soviet bloc.
The turnaround and reform of the Indian economy began in 1986 when the government initiated policies, which started opening its consumer markets to the western world. The reforms started with some tentative steps to open up the Indian marketplace to western products - both industrial and consumer. Restrictions on imports were relaxed, although very slightly. As a
5THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
India: Country background
result, trade with the western world started increasing, while trade with the Soviet bloc fell. However, with the sharp rise of imports by 1990, India’s external debt almost tripled and its foreign exchange reserves dwindled to below US$1 billion.
Rigidities in the domestic economy resulted in a serious slowdown in growth and a crisis of confidence. However, this crisis provided the much-needed stimulus for structural adjustment and reform. In the early 1990s, India’s highly regulated industrial policy was changed drastically as controls were scaled down. Imports were further liberalized, and foreign investment was allowed in a wide range of sectors. The momentum of liberalization slowed as a result of scandal, which undermined the credibility of the government and their reforms. The voters elected a new government in 1996, the beginning of another phase of development.
The new government was not particularly reform-oriented, but it realized early on that the economic policy changes that had been made could not be reversed. Nonetheless, the government since 1996 has moved more cautiously on reforms – encouraged in part by the Asian crisis of 1998 – consolidating and institutionalizing the positive aspects and reworking the negative ones.
The environment for domestic and foreign investment and trade has been progressively liberalized. Prior to the economic reforms in 1991, foreign investment in India was only $125 million. Furthermore, India’s imports were $27.9 billion and exports were $18.5 billion. However, between 1996 and 1997, foreign investment reached almost $6 billion and in 2000, imports and exports reached $50.5 billion and $42.3 billion, respectively. Since that date, they will have grown further.
Import tariffs have been curbed per World Trade Organizations (WTO) commitments. In April 2001, all remaining quantitative import restrictions were removed. Nonetheless, the government continues to discourage imports through both tariff and non-tariff barriers. Today the import duties for most consumer food products range from 31% to 52%.
Population and main socio-economic indicators
The Indian population is close to 1.1 billion people, representing one-fifth of global population. There are more than 1,000 languages spoken in the country, nearly 400 of which are spoken by more than 200,000 people. However, only 18 are officially recognized, and Hindi, the primary tongue of 30% of the population, is India’s national language. Various States also have their own official languages and some of the most widely spoken ones are Punjabi, Bengali, Tamil, Gujarati, Urdu, Telugu, and Marathi. In addition, English which enjoys associate status is the most important language for international and commercial communication.
India also has a very large proportion of poor people. More than 400 million live with less than $1 per day, without the resources to buy even basic foods. Almost 40% of India’s people are illiterate.
The text box below highlights some socio-economic indicators of India and illustrates the seriousness of the economic and social deprivation.
General background
The chocolate and confectionery market in India has undergone major changes and growth since the opening up of the economy and liberalization of the investment regime in 1991. India became an attractive place for foreign investment and several large multinational companies entered the market for confectionery products. This resulted in its steady growth and gradual transformation from a commodity market to a branded products market dominated by multinational companies.
Compared to the conventional fast moving consumer goods (FMCG), the confectionery segment in India offers significantly higher potential for growth. For example, over the past five years toilet soaps and detergents reached over 90% of the Indian households, while according to ORG-MARG estimates, chocolate penetration in 2000 was 5% and of sugar boiled confectionery, 15%.7 Even considering the urban market alone, the category reaches just 22% of the urban consumers. For comparison, cookies, considered to have modest penetration have reached 56% of the Indian households. Clearly the confectionery sector, which has been showing healthy growth over the last years, still has considerable potential to grow before it reaches saturation point, as have traditional FMCG products such as soaps and detergents. Indeed, the confectionery market in India is witnessing tremendous activity. Regular product launches, high decibel media activity, consumer promotions and trade promotions make this one of the most hyperactive categories in the Indian market.
The Indian confectionery market is segmented into sugar-boiled confectionery, chocolates, mints and chewing gums. Sugar-boiled confectionery, consisting of hard-boiled candy, toffees and other sugar-based candies, is the largest of the segments and, according to some key industry players we spoke to, it is valued at around Rs. 20,000 million.
Some of the largest multinational companies active in the confectionery sector, like Cadbury, Nestle and Perfetti, have already invested in India and others keep entering the market (e.g. Lotte in 2004). Also, global mergers and acquisitions have