Persistence for U.S. exporters hoping to charm Indian consumers

AgExporter, July, 1995

Thomas Pomeroy, the U.S. agricultural counselor in New Delhi, recently talked with AgExporter about the Indian market for food products, and where U.S. exporters might find cracks in Indian trade barriers that will give them a toehold in this vast market.

AgExporter: What U.S. commodities are being exported to India right now?

Pomeroy: The first thing you need to understand about the Indian market is that since independence in 1947, the government has focused on a policy of self-sufficiency in virtually all aspects of industrial and agricultural production.

One of the country's proudest accomplishments has been achieving a tenuous self-sufficiency in food production - and many Indian officials bristle at the mention of importing food products beyond what is necessary to offset occasional shortfalls or curb inflation in essential bulk commodities.

Nevertheless, the government has stated its intention of moving toward "trade liberalization." Right now the government's trade policy is focused on allowing imports of capital goods and intermediate products and eliminating barriers to Indian exports. With few exceptions, consumer-oriented food products are subject to a licensing requirement which effectively serves as a ban on imports.

The Indian government defines a consumer product as "any consumption good which can directly satisfy human needs without further processing." Consequently, this licensing requirement also extends to fruits and vegetables.

While there are a few preferential duties for developing nations and nearby countries such as Nepal, Bangladesh, Myanmar and Sri Lanka, India's ban on consumer product imports does not discriminate and all potential exporters are affected equally.

India's total agricultural imports of $953 million during its 1993/94 fiscal year were dominated by bulk products. Leading imports were items not produced in sufficient quantity in India (pulses, wood and wood products, wool, raw silk and dry fruits) or imported for re-export such as cashews.

India's imports of $119 million from the United States in calendar year 1994 were largely composed of food aid (protein grain products and vegetable oil), almonds and pulses.

Imports of pulses from the United States are primarily green peas shipped in bags or bulk containers and small quantities of dry beans. U.S. pulses accounted for 5 percent of total pulse imports during India's 1993/94 fiscal year.

The United States supplies 80 to 90 percent of India's almond import market as well as small volumes of closed-mouth pistachios for further processing. However, competitive U.S. prices also have spawned some shipments of almonds and pistachios in consumer packs since dried fruit and nuts are among the exceptions to the ban on consumer product imports.

Small volumes of U.S. raisins also have been imported in the past. However, landed prices have been uncompetitive with both domestically produced and imported raisins from other origins. The import duty on raisins is about 73 cents a pound. Importers are experimenting with prune imports from the United States. Once a food additive issue involving potassium sorbate can be resolved, importers are optimistic about sales prospects.

AgExporter: Just how big is the Indian market for consumer-oriented food products?

Pomeroy: It's still rather small for a country with over 900 million people, but it is has grown appreciably since the government enacted economic reforms in 1991.

India has perhaps 20 million people with a standard of living higher than the U.S. middle class. It has another 100 million people in upper middle class households (with incomes ranging from $1,100 to $2,500 a year). And there are about 200 million consumers in lower middle class households with annual incomes of $600 to $1,100 a year. Discretionary incomes for these Indian consumers are higher than the income figures would imply for higher cost countries such as the United States.

Foreign foods often gain their initial popularity with Indian consumers eating away from home or as gifts at festival times. Some middle class consumers buy snack foods when they eat out and buy presents such as almonds for their friends during holidays.

With the recent arrival of several multinationals such as McDonalds, Pizza Hut and Kentucky Fried Chicken in the fast food restaurant and food processing sector, the variety and quantity of consumer food products is expected to increase.

Indian consumers can already purchase potato chips, ketchup, soft drinks, candy bars, breakfast cereals, ice cream, donuts, biscuits, frozen meats and vegetables, instant noodles, jams and jellies, packaged grains and pulses and some ready-to-eat frozen meals.

AgExporter: What are some of the things exporters need to consider when introducing U.S. food products to Indian consumers?

Pomeroy: After almost 50 years of post-independence isolation, the Indian palate is accustomed to traditional foods - and initially consumer-ready food products may have to be tailored to include Indian spices and traditional ingredients.