Driving reform

The confectionery and bakery sectors in India are struggling to raise standards in order to consolidate export sales. Raghavendra Verma reports.

Indian confectionery and sweet bakery producers are struggling to gain lucrative export markets due to the lack of proper domestic food regulations, the country’s poor infrastructure and the high cost of borrowing money.

“Not much is exported to the developed world from India because our laws are not harmonised with those of other countries,” says Harsh Arora, president of the Indian Confectionery Manufacturers’ Association.

But reforms are under way. India has been updating its food-related laws and in 2006, its parliament passed a Food Safety and Standards Act, which consolidated various laws and regulations administered by different departments. The act also created the Food Safety and Standards Authority of India (FSSAI), which might drive quality improvements in future. Its main tasks are: to formulate standards; to regulate food production, storage, distribution, sales and import; and to liaise with the international Codex Alimentarius Commission food standards body.

Regulations and export

In August 2011, the FSSAI published its first set of technical regulations – but they have not been implemented properly, according to Dev Lall, CEO of Delhi-based Baker’s Circle (India) Pvt Ltd. “The FSSAI’s own people are not trained to interpret the new standards and don’t move fast enough to implement the changes,” he tells Confectionery Production.

Meanwhile, Arora notes that some standards policed by the FSSAI date back to 1983 and are still not harmonised with Codex standards. “Food colours like anthocyanin and beetroot are not allowed to be used as per the Indian food regulations,” he says. Furthermore, Arora notes Indian regulatory inconsistencies such as that agar-agar and gelatin are permitted in boiled sugar confectionery but not allowed in chewing gum. Anticaking agent sodium aluminosilicate and natural sweetener steviol are also not allowed in Indian confectionery production. “They are not on the approved list [of additives] and there is no reasoning as to why it is so,” he says.

These constraints curtail innovation by Indian manufacturers who need to augment their products for export markets as Indian tastes can vary widely from other countries, says Arora: “For example, we like spicy candies that are not sold in the western markets.”

As a result, a steady, but not overwhelming level of Indian confectionery products are sold overseas. International trade data suggests that last year (2013) India exported US$52m (€xx) worth of sugar confectionery (not chewing gum, no cocoa content), which was 25 per cent up on 2012. This growth is continuing, says Indian research company Infodrive India, which noted these exports this July generated US$6.8m (€xx) receipts, nine per cent more than in June.  The major importing countries were the United Arab Emirates, Angola, Nepal, Mozambique and Benin.

A matter of taste

Specific consumer preferences in India even impact domestic sales. According to Dr Girish Gupta, CEO, Foodees Consultants, major confectionery companies often divide their production units into three or four regions and amend flavours to suit local tastes: “In many states, if the taste of other regions is offered, the product would fail,” he says. “Gujarat, for example, prefers sweet taste in every product.” Some sugar boiled confectionery products are made less or more pungent to suit the local tastes, he adds.

And while Indian tastes and food regulations for bakery products do not create as many problems for Indian biscuit and sweet bakery exporters, they complain of a lack of standardisation of regulations regarding ingredients that could help their suppliers. “Products made from wheat procured in March are very different from those made from the wheat procured in September,” says Gurmeet Chhabra, CEO of Bonn Food Industries in Ludhiana (Punjab), which makes biscuits, cakes and cookies. As per the FSSAI standards, Indian food manufacturers must have their vendors approved by the designated officials of the authority, but, according to Chhabra, those vendors selling commodities such as wheat and barley are hard to regulate as they are mostly small, traditional traders.

Quality and standards

Standards and norms apart, the quality of Indian wheat itself is low, especially when compared to that of European or Australian wheat, Chhabra explains.

The non-availability of quality raw material is a serious issue for companies such as Baker’s Circle, which not only exports bakery items but also supplies them to western food outlets within India such as McDonald’s, Dominos, Subway, KFC, Pizza Hut and Starbucks. “For our frozen dough, 70 per cent of the inputs are imported,” says Lall. “This includes wheat flour, multigrain, oats, barley, yeast and even their packaging,” he adds.

Baker’s Circle’s exports include cakes, frozen dough and brownies, and all of its products are supplied to businesses or retail outlets in unpackaged and semi-finished form. “The restaurants have to do some level of finishing like slicing and putting chocolate chips or sauce on top,” says Lall.

Lately, Baker’s Circle has started exporting to Middle Eastern branches of some western food retail chains: “They used to import from the US or Europe but are now giving us a try,” says Lall. In India, Baker’s Circle serves 2,700 retail and food service outlets.

Nonetheless, he is pessimistic: “People complain of government bureaucracy, but 75 per cent of our problems are private sector driven,” he says. “The same mentality prevails in the truck driver who’ll switch off the refrigeration unit to steal fuel or the loading staff who decide to have a smoking break at inappropriate times.”

Furthermore, Lall says that food manufacturers struggle to adopt modern production standards because capital is scarce: “Our cost of borrowing is 14 per cent. We have to import raw materials at a 43 per cent duty. Real estate costs are very high and food transport infrastructure is poor,” he says.” It needs fixing from beginning to end.”

Positive news

Despite all these problems, biscuit exports are growing, according to KP Mohandas, secretary general of the Indian Biscuit Manufacturers’ Association. Indian biscuit exports have grown at 15-20 per cent annually for the past three years. “Five years ago, only four biscuit manufacturers were focusing on exports, but now there are 10 to 15,” including Parle Products Ltd, Mrs Bector’s Food Specialties Ltd, Dukes, a brand owned by Ravi Foods, Britannia and Priyagold, owned by Surya Food and Agro Ltd, he tells Confectionery Production.

While the domestic biscuits market is price sensitive and some mass market segments such as glucose biscuits offer only three to four per cent profit margins, exports are much more lucrative, says Mohandas, who notes that 15 per cent of India’s 2.3 million tonnes of biscuits produced annually are exported.

South Asia, the Middle East and Africa are major importers of Indian biscuits, while smaller quantities are also going to Europe, the US and Canada, says Mohandas. “Demand from African countries is mainly for glucose, chocolate and coconut fortified biscuits,” he adds.

Orders from Europe largely comprise of a richer and creamier variety of biscuits and those containing chocolate, says Mr Chhabra. This is a stark contrast to India’s domestic market, which largely comprises of basic products such as cream sandwiches, glucose and butter biscuits, he adds.

The lack of a large volume production base in India for the richer biscuit varieties sought by western clients is one reasons why Indian manufacturers cannot meet export market requirements, he explains. “Unlike big western biscuit manufacturers, who have dedicated lines specialising in particular types of biscuit, Indian factories have versatile lines usually making different varieties, and therefore it is difficult to match exact specifications mentioned in the export orders,” he says.

Bonn used to supply biscuits to Poundland Ltd, in Britain, says Chhabra, and now exports under its own brand name to Canada and the US. “The problem with these [western] importers is that whenever they start [a business relationship] they do it with very small quantities, which makes it unviable for us to match their prices and quality,” he continues, adding, “However, when the volumes are there, we are more competitive.” Another challenge is adjusting labelling for export markets, he notes.

Indian exporters must also adhere to various standards. For instance, Bonn follows India’s FSSAI and ISO 22000 (food safety management) certification, however UK customers insist on BRC Global Standards certification, which is costly to maintain, according to Chhabra. “We have to spend US¢6,600 annually [to revalidate the certification] and it is not viable if an order is just for one container,” he says. He argues that BRC certification is similar to the International Organization for Standardization’s ISO22000 with the only difference being in its own style of maintaining data and records.

The future

Confectionery and bakery producers are now looking to measures adopted by the new BJP-led government that has been promising an industry-friendly environment. A robust overall growth rate of 5.7 per cent registered during April to June this year has further improved the business atmosphere.

According to Arora, the new administration has already taken steps to harmonise Indian food regulations with Codex standards. His confectionery association is one of the representatives in the standards framing committee of FSSAI, and in the 30 July meeting, the task of framing draft standards for confectionery was given to the government’s Bureau of Indian Standards. Recounting an official meeting with the new central minister for food processing industries, Harsimrat Kaur Badal, Arora says: “Government is going to adopt positive and liberal policies and will provide incentives to the food industry especially in skill development.”

Government support would be crucial for increasing confectionery exports and it could come in several ways. “Although the APEDA (Agricultural & Processed Food Products Export Development Authority) provides support to manufacturers participating in business fairs [held abroad], more advisory is required to be provided to the small manufacturer,” says Chhabra.

Such support could be significant for Indian exporters, as Arora notes: “The exports of sugar boiled confectionery will soon go beyond the neighbouring south Asian countries and more to the developed countries.”

Meanwhile, the Indian confectionery industry has to guard against import competition. Price competitive products such as sugar boiled sweets are imported from Malaysia and Thailand, says Gupta, and significant volumes of chewing gum are also imported. According to Gupta, while food quality and testing regulations are strong in Europe, the US and the United Arab Emirates, in India they are much more loosely implemented, and consignments are rarely rejected.