Pomegranate is slowly gaining popularity worldwide – thanks to the increasing awareness about its health benefits. Alongside, the Government of India is doing its best to promote the fruit internationally and has been encouraging farmers to produce more. Result: Exports from India have been growing steadily. The Dollar Business analyses the pros and cons of the business of exporting pomegranates.
By Anishaa Kumar | August 2017 Issue | The Dollar Business
My mother used to push me to have pomegranates for breakfast with the notion that the red fruit was good for the heart. The cynic in me had always put it down to another of her old wives’ tale. Seems she was not altogether wrong and I owe her an apology! Doctors, of late, are encouraging their patients to eat fresh pomegranates. Here is why – Pomegranates have been found to contain high levels of anti-oxidants, Vitamins A, C & K, folic acid and potassium and eating pomegranate seeds or drinking pomegranate juice can lower the risk of stomach disorders, heart problems, diabetes, cancer and a host of other diseases. Naturally, the world over, pomegranate is fast becoming a popular ingredient in every day diet. The numbers also corroborate the fact that the demand for pomegranates is on the rise. According to a report by Prospectiva 2020, the global demand for pomegranate has been steadily growing over the last few years with its prices rising at a CAGR of 33% since CY2012. And this has created a great business opportunity for Indian growers and exporters, as pomegranates are native to India with the country being the world’s largest producer of the fruit.
It’s all about health
In fact, India’s exports of fresh pomegranates has also been growing at a rapid clip. In FY2017 India exported pomegranates worth $73.16 million, up 140% from the $30.45 million worth it had exported in FY2012. Revealing the reasons how pomegranate exports has become a profitable business opportunity, Nagesh Shetty, Owner of Mumbai-based Deccan Edibles Pvt. Ltd. an exporter of the fruit, says that an increase in awareness about health benefits of the fruit has been driving its demand across the world.
“Other than Middle East, Europe, Russia, and even East Asia for that matter, have emerged as lucrative export destinations. All thanks to the health awareness programmes across the globe,” explains Shetty. In fact, India’s pomegranate exports to US in FY2017 was more than double of that in FY2016.
Another factor that gives Indian exporters an edge over competition is that India is one of the few countries that produces quality pomegranates around the year. Kaushal Khakhar of Kay Bee Exports, a Thane-based exporter of the fruit, says, “The reason for the sudden rise in the exports is because other exporting countries produce pomegranate for only 3-4 months in a year, whereas India produces pomegranates all-round-the-year. In the past, India used to fill only the market gaps. But now, foreign buyers are approaching Indian exporters because of the improved fruit quality.”
A FRIEND INDEED
The government too has been a dear! Exporters of fresh pomegranate receive a 5% reward under the Merchandise from India Export Scheme (MEIS) in addition to 1% duty drawback. Apart from incentives, the government has also been directly supporting pomegranate farmers through training and subsidies for irrigation. “The government is doing its part by supporting the farmers, who are now beginning to find pomegranate to be a profitable product,” says Khakhar. These initiatives should ultimately result in increasing production and reducing the procurement price of the product and help exporters gain further marketshare.
Government agencies like Agricultural and Processed Food Products Export Development Authority (APEDA) have also introduced several recognised pack houses across the country. “Using such established pack houses helps us maintain a certain level of quality. And even if there is any increase in cost owing to this, it is offset by the benefits,” states Khakhar. In addition, the government has established several labs across the country and by using the facility, exporters can now reduce the number of rejections by the importing countries.
Shetty though says, “It’s not the incentive from the government but smart cultivation that will give a fillip to the business. If the government can introduce a better variety of pomegranate, it will benefit everyone including exporters.”
Size matters
But why is the variety important? Exporters explain that this is a business where size plays a huge role. Shetty says, “The basic problem is that our fruits are smaller than those grown in other exporting nations. Despite the arils of our pomegranates being of very high quality, importers prefer larger fruits.”
Another major issue exporters want the government to address urgently is the procurement price. Manoj Barai, Proprietor of Mumbai-based MK Exports, elucidates that sometimes the high domestic prices make the Indian produce uncompetitive globally. “Farmers think that exporters make more money. So, they tend to quote a higher price to us,” adds Barai. This happens mostly when the availability goes down. Hence, exporters want the government to intervene by standardising the price.
The government also needs to reconsider the existing infrastructure and logistic systems. Pomegranate is a perishable product. Thus, proper temperature-controlled warehouses will play a crucial role – especially when it comes to extending the shelf life of the product and minimising post-harvest losses.
The government should also standardise the air freight rates. According to the exporters The Dollar Business interacted with, air freight rates can soar really high during peak season. However, on the brighter side, exporters like Anand Shejwal, Managing Director of Bombay Exports, and Khakhar of Kay Bee Exports agree that the procurement process has never been a challenge for them as they have been using contract farming arrangements and 99% of their pomegranates are now exported via sea.
Being online helps
Despite sectoral challenges, the future seems to hold promise for India’s pomegranate exporters. Exporters agree that the demand for Indian pomegranate has never been an issue for them and all they need is a little help from the government with respect to maintaining quality.
In fact, accordingly, APEDA has been proactively working towards cutting down usage of chemicals in pomegranates with an aim to increase exports of high-quality pomegranate to EU – a market that has a huge potential. APEDA is also approaching importers in emerging markets like US to boost exports.
The penetration of technology in all corners of the world has also helped exporters. Exporters mostly have their own websites and are registered on various online market platforms and have no difficulties finding buyers. Barai shares, “Online buying and selling platforms are important because they provide us access to more customers. There is no guarantee that all enquiries will convert into business, but conversion rate of 1 out of 10 is still a healthy number.” Exporters also believe that a strong online presence can cut down on sales costs and turnaround time thus increasing their margins beyond the 5-10% levels that they currently work on.
Promising future
What’s more? The ICAR-National Research Centre on Pomegranate (NRCP) believes that the price of pomegranate in the domestic market will drop in the next few years as India’s production of the fruit increases. In fact, as per National Horticulture Board data, the annual production of pomegranate in FY2016 has gone up 29.98% y-o-y, to 23.06 lakh MT from 17.74 lakh MT in FY2015. NRCP further estimates that exports of the product will increase by 2.5 lakh MT to 3 lakh MT per annum. All these numbers suggest that Indian exporters will scale new heights – sooner rather than later. And encouragingly importers from China and Japan too have now started looking at India as a reliable sourcing destination. With demand and production on the rise and margins set to go up, pomegranate exports does seem like a healthy business to get into.
TDB: How has the market for fresh pomegranates evolved over the years?
Kaushal Khakhar (KK): We have been in this business for 15 years and we have noticed that the business environment is changing. Middle East is India’s largest market. But, over the years, some American companies have tried to promote fresh pomegranates as a healthy fruit and that has changed the way people look at the fruit. It has also helped push demand worldwide, especially in Europe.
India is one of the few countries that produces pomegranates round-the-year, and that is an advantage when it comes to exports. Also, the fact that our quality has improved and Indian varieties now enjoy demand from quality-conscious customers has helped boost exports. Earlier, India was only filling the gaps in the international market.
TDB: Is there a specific variety that enjoys more demand?
KK: Well, as far as I know, 99% of the pomegranates exported from India are of the bhagwa variety. I believe that is mostly because of the aesthetics and as such exporter and buyers prefer it. It is an attractive variety of pomegranate in terms of looks, quality and taste.
TDB: What challenges does an Indian trader face while exporting?
KK: Inadequate knowledge of chemicals usage among Indian farmers is a concern. So, the government needs to spread awareness among both farmers and exporters. Also, the lab equipment deployed in Europe are beyond our reach. So, despite our best efforts, sometimes the results from Indian and European labs are different – this at times creates a lot of confusion. Also India’s overall production is less than its domestic demand and hence the margins are higher in the local market. Further, exporters have to pay a high price to buy quality pomegranates from the growers, and that makes Indian pomegranates uncompetitive in several international markets.
TDB: What do you think needs to be done to boost pomegranate exports?
KK: The government is doing its part by providing direct support to farmers. Now our farmers have realised that pomegranate is a profitable product. But, India needs to increase production of the fruit to help up bring down the price and in turn make our produce internationally competitive.
TDB: Do you see room for new players in pomegranate exports business?
KK: We have no problems while procuring the product because we have our own farming set up as well as an integrated set of farmers who supply to us. But, there are challenges that everybody must deal with. I think it is all about efficiency and product and market knowledge! More exporters in the market would mean more price negotiations, but at the moment, the market is very balanced. And yes, there is a room for people who are enthusiastic and knowledgeable.
TDB: Is the demand for Indian pomegranates seasonal in nature?
Nagesh Shetty (NS): Yes, to some extent. Indian pomegranates are slightly more expensive than pomegranates from other countries and enjoy a healthy demand between January and April, especially in Russia and Europe as that’s when supply from other countries decline.
TDB: How has the business evolved?
NS: The Gulf region has always been our largest buyer. But as the awareness about health benefits of pomegranate is slowly growing, demand from Europe, Russia, East Asia and other regions, is increasing. Earlier it was the fresh pomegranate fruit that dominated the export basket, but now there is demand for juice too.
TDB: What’s the biggest challenge for Indian exporters?
NS: That would be the size of the pomegranate. Pomegranates grown in other countries weigh about 350-400 gms, while ours are lighter and smaller. For instance, if it takes 10 of their pomegranates to fill a box, it will take over 15 Indian pomegranates to fill the same box. Having said that, the arils of Indian pomegranate rank very high on quality and people who are aware about this prefer the Indian variant.
TDB: Can you think of ways the government can help the sector?
NS: The government currently provides 5% reward under Merchandise Exports from India Scheme and 1% duty drawback. But if the government can also help farmers produce better variants, it will give a fillip to the sector. In my opinion, if we do not change the variety, we won’t progress much. Exports from India is growing year-on-year and I have a good feeling that exporters will drive the business. And this year you will find exports rising as prices in India have dropped because of an increase in cultivation.
TDB: Is it true that the profit margins are low and in the region of 5%?
NS: Well, you are right to an extent. But profit margin depends on the export destination. For instance, in the last few months, we have exported six containers to the Gulf region. But, since our business in this region is based on market-driven price, which is always low, the margin isn’t alluring and can even be negative at times. However, when it comes to Russian and European markets, the scenario is totally different – even if the sale is based on market prices, an exporter can expect a 5% margin. Higher domestic production can also influence our margin in a positive way.
TDB: Would you recommend a budding entrepreneur to join the business?
NS: This is a good product to consider. But since this is a seasonal business, there are many ifs and buts. Also, one may not be able to get the desired volumes to sustain. However, product diversification will help – and hence our company also exports many other agro products.
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