Salt needs no introduction. It’s a commodity that is consumed by almost every single human being, every single day. But what not many know about this not so fancy condiment is that it also makes for a lucrative export business. India is already the 3rd largest exporter of salt by volume and the 7th largest in terms of value, and its exports are only rising each year. We’re talking about Rs.750-plus crore in exports a year already! Not so common an exports commodity, isn’t it?
Interview by Vanita Peter D’souza | May 2016 Issue | The Dollar Business
In 1930, Mahatma Gandhi initiated the 24-day Dandi March as a non-violent civil disobedience movement to protest against the British salt monopoly and tax regime. But then why salt? According to Mahatma, “Next to air and water, salt is perhaps the greatest necessity of life.” The march was a turning point in the history of the Indian War of Independence. But 86 years ago, little did he know that his march for salt would also change the course of India’s salt industry. Come today, and the nation that was once forced to import salt has become the 3rd largest salt producer in the world and, of course, one of its leading exporters.
While India exported salt worth $24 million in CY2006, in CY2015 salt exports from the country were to the tune of $129.2 million – a 438% jump. This staggering growth in exports of salt from India can mainly be attributed to a meteoric rise in its production in the country – from just 1.9 million tonne in FY1947 to a record 26.88 million tonne in FY2015, with salt farming being done on over 6.16 lakh acres of land across India. What’s more? The industry expects the annual production of salt in India to reach 40 million tonne by FY2020.
There are factors that have equally contributed to the growth of India’s salt exports over the last decade. Prime being the consistently rising demand for industrial salt in the last decade.
The rise of industrial activity and processed foods sector in China since the early 2000s isn’t a tale unheard of. “Salt exports from India have surged mainly due to an increased demand from China, which started importing from us in 2004. Today, nearly one-fourth of India’s salt export is directed to China. In fact, India increased production to meet the growing demand from China,” Avishek Modi, Managing Director, Suvino Exports tells The Dollar Business. China’s chlor-alkali industry is booming, but their domestic salt production is unable to keep up with this pace, and hence, China has to import salt as raw material from India. “Most of the chlor-alkali factories in China are located close to the ports, which helps them import salt at competitive rates,” adds Modi.
Further, unpredicted natural calamities in some of the leading producers of salt like Australia and China, have helped boost India’s exports of industrial salt to countries such as Bangladesh, Malaysia and Nepal. And then India also has its traditional export markets like South Korea, Japan, Indonesia and Vietnam, where the demand for Indian salt is steadily rising. Although in CY2015, India was able to increase its exports to US, it was mainly because sea freight was at its lowest. As the freight increases after hitting rock bottom (which it already has!), US may no longer remain a lucrative destination for Indian exporters.
The question though is why India cannot climb the global export-ladder when it has the potential to make it to the very top. The answer cannot get any simpler! It’s due to the inconsistent quality of salt produced in India. For instance, importers like Japan have always demanded high-quality salt. But since India is not able to produce high-quality salt consistently, Japan has started sourcing the product from Mexico and Australia to satisfy its demand for high-quality salt. Interestingly, in CY2015, while India was the 3rd largest exporter of salt by volume, it was 7th in terms of exports value. To add to this, big importers from India such as China and South Korea are also increasingly demanding high-quality salt at competitive prices to lower their processing costs and protect the machines they use in the chemical industry. But since price and quality equilibrium is something India has not been able to attain, Indian exporters have not been able to forge long-term agreements with big importers.
The reason is simple. A majority of Indian salt producers have small salt works, which makes it difficult for them to achieve economies of scale as well as quality benchmarks. On the contrary, most leading exporters of salt around the world (except from India) have huge salt works – a single salt work can produce over one million tonne of salt per annum. Then they also have integrated salt works with their own salt washery and captive ports, which help them maintain global quality and yield higher per metric tonne price. “There are a few relatively large salt works in India that can produce high-quality salt and fetch a better price. But we must add that the quality of Indian salt has also been improving steadily over the years with investments in mechanisation and washeries,” says Modi.
Speaking about salt quality and ways to improve it, G. R. Raghavender, Salt Commissioner, Government of India, tells The Dollar Business, “Our representatives collect samples from various areas, depending on shipment sizes. And once the salt clears the test or meets the standard quality, an exporter is given Export Worthy Certificates (EWC) by the Salt Commission of India; until then (s)he cannot ship out anything.” Unless specified in the export contract, the testing procedure is conducted under the guideline of Indian Standard Specifications, which is specified under Food Safety & Standards Act 2006. To be able to receive EWC, salt needs to meet several requirements: 97% of it should be sodium chloride (NaCl); it should also have 850-1100 parts per million (ppm) of iron; there should be a minimum of 15 ppm of iodine in industrial salt and 30 ppm of iodine in salt that is retailed, and not less than 1.1% and 0.10% sulphate and magnesium respectively.
Salt testing is conducted for free for all exporters. However, several export houses like Suvino prefer doing an in-house quality inspection, just to be doubly sure of quality. “We conduct rigorous testing, and only those salt heaps that get EWC are moved to the port,” says Modi.
Logistics heavy
Like most other industries in the country, export of salt is also affected by insufficient logistics. In fact, if exporters are to be believed, salt exports is more about logistics and less about salt! Logistics makes up for almost 50% of the FO
B cost of salt. And the irony is that logistics costs have only been increasing over time making India salt less competitive in exports market across the globe. “Logistics costs have increased manifold over time, while the price of salt, both in the domestic as well as international markets, has remained more or less the same,” B. C. Rawal, President of Indian Salt Manufacturing Association tells The Dollar Business. Since salt is a low-value commodity, this makes the situation very difficult for an exporter, particularly a new entrant.
To overcome this challenge, the industry wants the government to provide better hinterland connectivity and quicker transit routes to ports across India. It also wants the government to do away the restriction that a truck cannot carry more than 9 MT of salt, when in reality it can actually carry around 50 MT. Removal of this restriction will result in reduction of logistics cost by over 50%. Another issue that bothers salt exporters is the non-availability of railway wagons on time and imposition of a quota system for availing wagons. Exporters believe the government can also improve the situation by combining small salt works into groups and setting up washeries for them – or provide a subsidy for installation of washeries. The industry also wants the government to allot more land for salt production.
India can easily become leader in salt production and exports if policymakers address the issues that continue to plague the industry. It’s time to work on both quality and quantity problems that keep India tied down. If policymakers do more than just show sweet gestures, and quickly so, exports will get better for India’s salt manufacturers!
TDB: Salt exports from India have surged over 400% the last decade. What do you think helped?
G. R. Raghavender (GRR): India is not distant from iodine deficiency-related problems. But in 1992, the government achieved the target of universal salt iodisation. Also, we recently started double fortification, in which we not only fortify the salt with iodine, but even with iron. So, I think, along with the rise of salt quality, exports soared.
TDB: How can India become one of the largest exporters of salt by value and not just volume?
GRR: This is an issue that needs to be jointly addressed by salt manufacturers and the government. The Salt Commission is involved only in the facilitation of trade, and there is a process we follow for salt inspection for exports. Once quality improves this anomaly will be erased.
TDB: Can you brief us on the salt inspection process?
GRR: The first step is the compulsory free shipment inspection of common salts, both iodised salt and refined salt. Exporters submit an application at our regional or state offices at least 20 days before the shipment date. Our representatives then travel to the manufacturing sites or the premises and collect samples from various areas, such as wagons and salt heaps. Salt is then analysed in a laboratory – at the moment, we have about 26 salt testing labs. The result has to be in line with Central government standards. For instance, 15 PPM (parts per million) of iodine has to be mixed with edible salt. However, if the export contracts have any specific standards, we follow that. At the moment, salt testing is done free of cost, but the government may levy a negligible fee in the future.
TDB: What are the other roles of the Salt Commission?
GRR: We provide sellers with a No Objection Certificate (NOC), because it’s only when the sellers submit the NOC to the Railways, that they can avail transport subsidy. We also train salt workers. Last year, we had about 20 training programmes across India. It’s a public–private initiative. Taking care of health-hazard problems is also a part of our role.
TDB: What initiatives have you taken to help the industry as a whole?
GRR: I am also the Director General of the National Productive Council (NPC), an organisation dedicated to promoting productivity in all sectors of the economy. Earlier it used to train MSMEs, but now it has also started training programmes for the salt industry. This move was initiated by me; my NPC team in Gujarat contacted the state Salt Commission’s office and together we started the programme.
TDB: Why is salt not promoted under the ‘Make in India’ programme?
GRR: Central Salt and Marine Chemicals Research Institute (CSMCRI) is helping the salt department to modernise salt manufacturing through Model Salt Farm Modules (MSFM). MSFM was inaugurated by the Commerce Minister Nirmala Sitharaman at Marakkanam (Tamil Nadu). We may soon move in the ‘Make in India’ direction.
TDB: Indian salt exports have done well in the last decade. What factors have contributed to this growth?
B. C. Rawal (BCR): Prior to 2004, India was exporting salt to its traditional buyers, such as Japan, Indonesia, Vietnam, etc. But soon, we started receiving orders from China – 50% of salt exports from India was routed to China. However, salt production in China increased, even surpassing India’s production. As a result, our exports went down. However, it’s the quality of our salt that has helped us sustain our exports. Post-2010, a lot of things have changed, and today you can compare the quality of our salt with that produced in a country like Australia.
TDB: How does logistics impact the salt industry?
BCR: Logistics is an integral part of the salt industry because salt trade is purely based on demand and supply. If you look at the cost of production, the cost of high-speed diesel, electricity, minimum wages and other costs have increased continuously. Whereas, there is little or no change in the average salt price. It is not only in railway or roadways that the logistics cost has increased, but even in sea freight. For instance, five years ago, when the total cost was Rs.900 per MT, Rs.500 went towards salt cost and Rs.400 for logistics. But now, logistics cost has gone up to Rs.600 and profits are being hit as the selling price has not gone up.
TDB: If China is the largest salt producer, why is it importing from India?
BCR: The development rate of China’s chlor-alkali industry is almost double when compared to India’s. China is therefore importing salt as an input.
TDB: How does the industry govern salt quality?
BCR: Salt quality is determined by the content of Sodium Chloride (NaCl). In India, the NaCl level has to be a little above 97%, while in countries like China, the NaCl level has to be 99.5%. It’s not that India cannot produce high-quality salt, but our domestic market isn’t willing to buy such salt at a high price.
TDB: How can we increase our price realisations?
BCR: We need more ports. Salt is the last item on the priority list of ports. By the time the product reaches the destination, it gets damaged. At the moment, Kandla is the major port for exporters from Gujarat and Rajasthan, but I wish we had more such ports that are well connected with roadways and railways.
TDB: What has contibuted to the phenomenal rise in salt exports?
Avishek Modi (AM): The meteoric growth of salt exports was mainly due to China’s demand for salt – since 2004 about 25-30% of Indian salt exports is directed to China. Meanwhile, our production too increased in order to cater to the growing demands, and we received support from Kandla Port, which helped us ship the material at competitive costs.
TDB: Earlier, during one of your interactions with The Dollar Business, you had mentioned that ‘salt export is more about logistics and less about salt.’ Has anything changed on the ground?
AM: Nothing has changed! The cost of salt at the salt works is a very small portion of the total landed cost for the buyer. I would say it is between 10-20%. The remainder is purely logistics cost.
TDB: India is the 7th largest exporter of salt by value and the 3rd largest exporter by volume. Can we bridge the gap?
AM: All leading salt exporters, except for India, have huge salt works – a single salt work has the capacity to produce more than one million tonne per annum. A majority of Indian salt manufacturing is fragmented into many small salt works making it difficult for us to achieve better specifications. There are a few salt works that produce high-quality industrial salt and they are able to command better prices. Nonetheless, the quality of Indian salt has been improving steadily over the years with investments in mechanisation and washeries.
TDB: Are you exploring new markets for Indian salt?
AM: We export mainly to China, South Korea, Vietnam, and Bangladesh. Last year, we also made a couple of shipments to US, but that was due to extremely low ocean freights. At the moment, I do not see any new market as ocean freights have started rising after hitting rock bottom last year.
TDB: China is a bigger producer of salt than India, yet it is also the largest importer of salt from India. Why?
AM: The Chinese chlor-alkali industry has grown substantially in the past decade. This growth has been faster than the growth in their salt production, thus the need to import industrial salt, which is the main raw material. Also, most of the chlor-alkali factories are located on the coast, near to the ports. This helps them import salt in Panamax vessels (50,000-60,000 MT per vessel) at rates competitive with local production.
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