India is a major world market for flavour, fragrance and essential oil ingredients. Driven by the growing processed foods, pharmaceuticals and cosmetics sectors, the flavour market is booming. Debasish Ganguly offers a profile of the major local and international players and outlines the difficulties and opportunities they face in India.
Today, India is the largest market in South Asia, representing a vast yet largely untapped outlet for many western-type goods and services India is projected to be one of the world’s largest economies in terms of GDP, at purchasing power parity. Interestingly in an ageing world the Indian population comprises of a relatively high proportion of younger generations.
India is presently a major world market for flavours, fragrances and essential oils and this is expected to grow further with the population and economy. The ‘served market’ is currently catering to the urban rich and the middle class, and there is a very large untapped potential that can be unlocked given the right triggers. In short it is a market that can be shaped and moulded.
Given the huge population of India, tastes vary from region to region. This factor provides a greater opportunity as well as a challenge to all the major flavour producers in the country.
Billion dollar industry
The flavours, fragrances and aroma chemical industry worldwide is worth over an estimated US$15bn. These are products that are ingested. The largest users of flavours are the food industry viz. the manufacturers of biscuits, chewing gum, confectioneries, bakeries, beverages, savoury snacks, liquor, dairy products and a number of other processed foods. Apart from that flavour finds its application in pharmaceuticals, dental preparations, synthetic syrups and other areas.
The technology in making flavours and fragrances is controlled by seven to eight major worldwide producers, who hold 70% of the market share. Most of these companies are represented in India. The Indian market for flavour is very competitive and offers tremendous scope for development. But one has to be extra smart in the area of creation, applying that flavour to the end product, and showing it to the customer to make a choice.
The Indian flavour market is pegged at an estimated Rs 2250 to 2500 million (US$44.4-54.9m), growing at a modest 7-9%. Because of its dependence on the end user base it is difficult to put down figures on a regional basis. For example, the decision to buy a product could be made in Mumbai (West) but it could be used in Chennai (South).
Sophisticated trading system
The trading and production of flavour and fragrance raw materials within India dates back 500 hundred years. Initially, much of trade was based on the barter system. Today, it is highly organised. Indian manufacturers source their raw materials for flavours from all over the world, apart from local sources. The proportion of local to import varies between 50:50 to 40:60. Today, no country is self sufficient in all the materials consumers demand, and all countries export and import.
It takes a large number of odiferous chemicals in proper proportions to give a flavour of the desired characteristics and profile. A typical flavour may contain between 30-80 items. Vanilla is the most largely used flavour. It goes into almost everything, the reason being that it has a flavour of its own that boosts other flavours, but tastes differs.
The major demand is for low priced flavours that is priced somewhere between $8-12 per litre; these are mainly used in candies, biscuits, jams, jellies, ice creams, gums etc.
The market for sophisticated and natural flavours that was low just a few years back is on rise. The key demand driver in the flavour sector has been confectionery, beverages, snack foods and dairy products. Broadly the flavour consumption in India by end-user segments can be categorised thus:
Multinationals companies like IFF, Quest International, Duckworth, Dragoco and Doehler dominate the flavour sector in India. In fact companies like BBA (now IFF) and Quest have been operating in India for more than 40 years. Most of these companies have entered India through the trading route that was later converted into a joint venture with a suitable Indian player mostly in the form technical know-how.
Some time back it was not allowed to have a wholly owned subsidiary in India but now it has been opened to all. The latest to get a wholly owned subsidiary is Duckworth Group of England which entered India in1992 under a joint venture with Khoday group. Duckworth started its wholly-owned operation in April 2003.
The presence of all the major foreign brands in India is very likely to hasten the growth of the flavour market. It is estimated that the flavour industry of India will continue to be dominated by those International flavour houses that have a strong local manufacturing base and use local resources. Presently, an estimated 60% out of the Rs 230 crores flavour industry is contributed by the multinationals and the remaining 40% by the local players. Some of the major local players like Asian Aromatics and Ultra International also make quality flavours.
Tailor-made flavours essential
The future will hold many new challenges for the flavouring houses, particularly in understanding the needs and tastes of Indian consumers. Although it is tough, the ideal strategy is to develop flavours specific to the needs of local populations. The longstanding experiences of the Indian market have convinced the leading international players of the importance of producing tailor made flavours. This is done through constant testing and keeping in close contact with the customers’ needs.
In recent years, there has been a rapid growth in demand for plant-based raw materials for manufacturing exotic food flavours and fragrances. Some of them are high value products and their demand individually may command a sizeable market. This offers opportunities to India that has been gifted with varying soil, climatic conditions, and vast natural resources. The need of the hour is systematic procedures to face these new emerging challenges to avail opportunities. Therefore, the R&D effort needs to be relevant and market oriented.
Up until recent years, constraints on importation existed through the government’s protectionist policies. However, the last seven to eight years have seen economic liberalisation, including a reduction of import duties and import restriction. Today, the flavouring essences used in liquor, food products, dental preparations etc occupies an import duty of 56.83%, whereas synthetic flavouring essences mainly used in the beverage sector attracts a duty of 213.6%.Large flavour houses in India go for direct imports of raw material whereas the unorganised market buys locally from the importers or traders.