CCP: BA/TF 01/11


COMMITTEE ON COMMODITY PROBLEMS

INTERGOVERNMENTAL GROUP ON BANANAS AND TROPICAL FRUITS

Second Session

San Josť, Costa Rica, 4 - 8 December 2001

MARKET FOR TROPICAL FRUITS IN INDIA

Table of Contents



I. INTRODUCTION

1. The Second Session of the Sub-Group on Tropical Fruits held in Gold Coast (Australia) in May 1999 recommended that future studies by the Secretariat on emerging markets should be extended to selected markets, such as Eastern Europe, the former USSR, Scandinavia and India.1 A market overview of the current outlook for tropical fruits in India was prepared in response to this recommendation. This case study reviews supply, demand and trade trends as well as the current prospects for the future development of the tropical fruit market in India.

II. SUPPLY AND DEMAND TRENDS

A. PRODUCTION

2. India is the one of the largest and most varied fruit producing nations in the world, accounting for 10 percent of all fruits and nearly 40 percent of tropical fruits produced globally. Fruit production in India increased at an average annual growth rate of 5.5 percent between 1990 and 1999, while harvested area and yields increased 3 and 2 percent, respectively. Fruit production increased steadily between 1950 and 1989, dramatically increasing over the last decade despite agricultural policies largely focusing on the food grain sector. Production increased 54 percent, from 28.6 to 44 million metric tonnes between 1992 and 1999, according to the Ministry of Agriculture (National Horticulture Board) for India. Fruit tree production contributes 10 percent on average to the gross value of total agricultural output in India, and 13 percent of the export earnings attributable to major agricultural products.

3. The major tropical fruits grown in India include mango, banana, guava, pineapple, papaya and lychee, with lesser production of sapota, jackfruit, phalsa, annona and ber (Table 1). Tropical fruits account for nearly 70 percent of all fruit production in India2. The 3 major tropical fruits (mango, pineapple, papaya) accounted for 28 percent of total fruit production in 1999, while all other tropical fruit accounted for 7 percent. Production of major tropical fruits by region in 1998/99 is shown in Table 2 with harvested area, production and yield per hectare by fruit in Table 3.

4. Mango is by far the most significant tropical fruit produced in India, followed by guava. Mango output was 9.8 million tonnes in 1999, with guava at 1.8 million tonnes. Papaya and pineapple are also important in the sector, with production levels at almost 1.6 million tonnes and 1 million tonnes, respectively, in 1999. Papaya production increased 96 percent between 1992 and 1999, and pineapple production by 30 percent over the same period. India is the largest producer of mango in the world and second amongst papaya producing countries. Production of other tropical fruits, particularly the less traded fruits, which are referred to as minor fruits in this document, has also increased, with sapota output increasing 70 percent between 1992 and 1999.

B. TRADE

5. Although India is one of the world's largest fruit producers, current export volumes represent less than one percent of domestic production levels, and an insignificant amount of total world fruit trade. Despite the low levels of exports, more than 80 percent of total fresh fruit exports from India are tropical fruits, mostly mangoes, guava and pomegranates. India is the third most important exporter of mangoes world-wide (after Mexico and Brazil), shipping 47 000 tonnes or 8 percent of the global total. Fruit exports typically earn 20 to 30 times more foreign exchange per unit of cultivated area than cereals due to the higher product value and prices obtained in international markets. India imports small quantities of fresh fruit, mostly pears, plums, oranges, grapes and figs, and larger volumes of dried fruit such as dates, raisin and sultanas. Total imports of both fresh and dried fruit reached 110 000 tonnes in 1998 and were valued at US$ 39.6 million (Table 4).

6. Export earnings from fresh and dried fruit trade and processed fruits and juices were US$ 74.5 million and US$ 73.4 million respectively in 1998. Export earnings from fresh mango trade totalled US$ 20 million, and nearly 50 percent of processed fruit exports were mango-based products. While the value of fresh and dried fruit exports nearly doubled from 1991 to 1998, export earnings from processed fruit and juice increased by less than 50 percent over the same period.

7. The Near East, the Far East and Western Europe are the main export markets for Indian tropical fresh fruit and processed products. The major destinations for fresh mango from India are Bangladesh, Saudi Arabia, the United Arab Emirates, Kuwait, Bahrain, Qatar, the United Kingdom and Germany. Processed products such as fruit juice, fruit pulp and pickles are mainly exported to the former USSR and the Yemen Arab Republic. Other markets for processed fruit are the United Kingdom, United Arab Emirates, Saudi Arabia, Kuwait, Germany, United States, the Netherlands and Switzerland. India also exports dried mango slices, puree, paste and juice to many of the same markets.

C. APPARENT CONSUMPTION

8. Tropical fruit consumption in India is both widespread and varied, as climatic conditions allow the production and supply of a large number of tropical and other fruits for virtually the entire year. Although tropical fruits are consumed throughout the country, comprehensive data on consumption are not available. Apart from local markets in rural growing areas, the terminal markets in urban areas distribute and sell large quantities of tropical fruits, either directly into retail channels or to wholesalers in more distant markets.

9. Total apparent consumption of fresh fruits in India was estimated at 29.9 million tonnes in 1998. Consumption of fresh tropical fruits was estimated at 12.8 million tonnes, or 43 percent of the total. Annual per caput consumption of fruit was estimated at 31 kilograms (kg) in 1998, with major tropical fruits at 13.3 kg (bananas at 7.7 kg), temperate fruits at 4.2 kg and other fruits at 5.9 kg (Table 5).

10. Total consumption of all fresh fruit in India has increased considerably during the past twenty years in both rural and urban areas (Table 6). According to the National Sample Survey Organization, 64 percent of rural households reported fresh fruit consumption in 1999 compared to 84 percent of households in urban areas. There are considerable inter-state differences in per caput consumption of tropical fruit in India. In the absence of quantitative data for consumption of individual tropical fruits, per caput expenditure for all fruits is taken as proxy to assess the level of consumption in various states. Kerala, Tamil Nadu and Goa have the highest level of fruit consumption, in both rural and urban areas. This may be partially attributable to the consumption of fresh coconut, an important ingredient of daily food intake. Punjab, Haryana, Delhi and the Union Territories of Chandigarh in the north are the next largest consuming regions. Consumption levels are much lower in Bihar and Orissa in the east and Rajasthan and Madhya Pradesh in central India.

D. MARKET SHARE BY FRUIT

11. Monthly deliveries of fresh fruits were monitored and analyzed in 4 of the 19 terminal markets in India from 1995 to 1997. The markets analyzed include Delhi, Mumbai, Calcutta and Chennai, with seasonal arrivals of fruit broadly classified into the summer (April through September) and winter (October through March) periods. Delhi is considered the largest wholesale fruit market in Asia.

12. According to the available data (Table 7), tropical fruits accounted for nearly 40 percent of the total trade in fresh fruit in the Delhi terminal market over the 1995 to 1997 period, with the balance temperate fruit. Among the individual tropical fruits, mango was the most significant in volume terms, accounting for 12 percent, while the lowest volume was for lychee. Market share of tropical fruit traded was higher in Mumbai (64 percent), Chennai (66 percent) and Calcutta (51 percent) than in Delhi, although breakdowns for individual fruits traded were similar to the Delhi market. Seventy percent of tropical fruits are marketed during the summer months: mango and lychee are traded almost exclusively from April through September, with 40 percent of sapota and 60 percent of all other tropical fruit also marketed during the summer.

III. FACTORS AFFECTING DEMAND

A. POPULATION

13. Population growth in India is currently 2 percent per year, and varies from state to state. The states with the highest per caput fruit consumption are usually those with lower population growth rates. According to official statistics, population growth is expected to decline to 1.5 percent per year3 by 2011 when the total population of India is expected to reach 1.2 billion. Significant potential exists to expand fruit consumption in rural areas, states with currently low per caput consumption rates and growing urban areas. Higher levels of per caput fruit consumption are increasingly evident in urban areas, for virtually all income groups, with the higher income levels showing the highest per caput consumption rates.

B. INCOME AND PRICES

14. The Indian economy has achieved significant growth over the past twenty years. Real annual GDP growth rates have averaged 4.7 percent over the period, despite the Asian economic crisis and slow industrial growth in the past five years. Real per caput income levels increased 3.4 percent per year from 1981 to 1998, with household expenditure for fruits and vegetables estimated to have increased 5 percent per year over the same period. Annual per caput fruit consumption also increased, from 25 kgs in 1981 to 31 kg in 1998.

15. There is a significant positive relationship between income and fruit consumption. The consumption of tropical and other fruits is highly related to income levels. Data from the Indian Agriculture Research Institute indicate that the richest income group consumes six times more fruit than the lowest income group, in both rural and urban areas, with per caput consumption in urban areas almost twice that of rural areas4. For rural areas, the overall weighted average of the income elasticity of fruit demand for the highest income group was estimated at 0.283 compared to 0.826 for the lowest income levels. Similarly for urban areas, the income elasticities were 0.293 and 0.782 respectively (Table 8). Thus, the higher the income the less responsive is fruit consumption to changes in income levels. Given this relationship between income and demand, lower income groups are likely to account for most of the future growth of the market in India, although high income groups may increasingly substitute tropical fruit for other fresh fruits as fruit consumption in these groups approaches saturation.

16. Prices of fruit have increased more than the General Price Index (Table 9) with total fruit consumption generally highly sensitive to price changes, as discussed above. A substantial price differential exits between wholesale and retail prices as shown by Table 10, primarily due to the margins captured by intermediate buyers and sellers, perishability of product, and long distances between wholesale and retail markets. High retail prices for fresh tropical fruit are one of the primary constraints to increasing consumption, particularly among middle to low income households.

C. CONSUMPTION HABITS AND PREFERENCES

17. Consumers in India have become increasingly aware of the positive health aspects of fruit consumption, particularly in urban areas. A more diversified diet and interest in healthier eating has led to increased consumption of all fruits. Prices also play an important role in consumer preferences for individual fruits, with tropical fruit prices typically lower than for temperate fruit. Temperate fruits tend to be consumed by the higher income groups, while tropical fruit consumption is more widespread. Large quantities of fresh unripe mangoes are utilized in household preparation of pickles and chutneys. Consumption of lychee and sapota is largely concentrated in higher income households. The market for minor tropical fruits, such as passion fruit, carambola and avocado is expected to rapidly increase over the near to mid-term, with consumption concentrated in higher income groups at the present time.

D. PROMOTIONAL ACTIVITIES

18. Few national or regional promotional activities, either commercial or state-sponsored, have been developed to encourage domestic consumption of tropical or other fruits in past years. However, nutritional education programmes by the Government of India have resulted in rising demand for higher quality fruit, as well as increased preferences for more varied diets (including more fruit consumption). A number of large agro-processing industries have initiated promotional programmes for processed fruit and juice products in recent years, utilizing mass media and in-store promotions to enhance brand recognition and encourage consumption.

E. SEASONALITY

19. A survey of three wholesale terminal markets in October 1999 revealed large variations in prices due to seasonality (Table 11). Furthermore, despite some efforts to better manage surpluses due to seasonality, an estimated 25 percent of total fruit production goes to waste during post-harvest handling, according to the National Horticulture Board of the Ministry of Agriculture for India. Although the Government of India has taken steps to improve the overall conditions of the fruit industry, future growth is constrained due to inadequate refrigeration and cooling facilities, remote market access and export infrastructure not meeting the demanding requirements for the export of fresh fruit.

IV. MARKET ACCESS, ISSUES AND CONSTRAINTS

20. Imports of fresh and dried fruits (except dates and figs) were banned or restricted prior to 1997; currently, imports of all fresh fruit (except citrus, grapes and lychees) are included in the free category and imports are allowed generally on Open General License (OGL) bases.5 For imports of citrus, grapes and lychees a Special Import Licence (SIL) is required. India imposes a 44 percent ad valorem import duty on these products from SAARC countries6, while imports from other countries must pay import duties at 45.6 percent. There are no export duties on fruit from India.While India does import occasional quantities of fresh fruit, largely mangoes from Pakistan, imports of fresh and dried dates and other dried fruits are likely to continue. Sanitary and phytosanitary regulations in India are minimal.

V. PROSPECTS AND CONCLUSIONS

21. Domestic demand for fresh tropical fruits has been steadily increasing due to rising incomes, population growth, urbanization and increased health consciousness. However, per caput consumption of tropical fruit remains low compared to other producing countries in the region, such as Malaysia and Thailand. There is considerable potential for growth, particularly in rural areas where current consumption levels are low. However, market infrastructure, transportation facilities and the quality of the produce must be improved in order for the industry to capitalize on its potential. Fruit consumption in India is anticipated to increase by 4 percent per year according to projected growth rates for income, population, and trends in food preferences. This would result in demand for all fruits reaching 66 million tonnes by 2010, with the bulk of this demand growth for tropical fruit. India can meet this increased demand by identifying and adopting measures to reduce waste and improve domestic productivity of fruit. Consumption of processed fruits, particularly juices, is expected to increase rapidly, particularly due to projected income growth.

22. There seems to be considerable potential for expansion of exports. In view of the importance of fruit exports also to the economy, the Indian Government has launched special export enhancement programmes for fresh fruits and other horticultural products with special emphasis on export market promotion, financial assistance to exporters, transport subsidies, more export oriented production (higher quality), market development and post-harvest management.

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1 FAO: Report of the Second Session of Sub-Group on Tropical Fruits: CCP:BA/TF 99/17.

2 Data presented in Table 1 include banana and citrus; however, discussion of these fruits has been excluded for the purposes of this document.

3 Government of India: Planning Commission: Ninth Five Year Plan (l997-2002): Development Goals, Strategy and Policies, Vol. L.

4 Government of India: Department of Statistics: National Sample Survey Organization: Level and Pattern of Consumer Expenditure: 5th Quinquennial Survey: l993-94: NSS Fiftieth Round: Report No. 402.

5 Garg, Anand: (Ed.): ITC-HS Classification of Import Items with Indian Import Tariff, Vol.3: Published by Business Database Publishing Company: Rohini, Delhi.

6 SAARC is the South Asian Association for Regional Cooperation. Member countries include Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.