Good Fruit Grower / May-1st 2006 / IMPACT on Trade

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IMPACT on Trade

India and apples

Although half of India’s population still lives in rural areas, its economy is experiencing double-digit economic growth with a rapidly growing middle class. Nevertheless, cities in Indian urban areas are still polluted and overcrowded with cars, bikes, and people. India’s cities have begun to build infrastructure to accommodate the increased traffic flow as road construction frequently gridlocks traffic, and drivers maneuver through the packed streets with one thumb on the horn!

India is still a developing economy by most economic standards. However, since opening its markets, India has experienced phenomenal growth in only a few years. Its economy grew by more than 12 percent last year and is projected to continue to keep growing at a rapid pace.

The IT (Information Technology) sector of the economy is credited for stimulating much of India’s rapid economic growth. In Bangalore, one of India’s larger cities, more than 50 percent of the economy is based upon information technology with call centers for U.S. companies being an important component. India’s economic growth has been sustained by an increase in manufacturing and services that are supplying countries all over the world.

When India opened its borders for trade in the late 1990s, there was tremendous growth in both imports and exports of agricultural products. India’s major agricultural exports currently include meat, spices, and vegetables. It is a major importer of fruit, especially apples from the Pacific Northwest. In fact, Red Delicious apples are considered the number-one imported fruit in India, according to several retailers. Most small shops, street vendors, and all supermarkets sell Washington Red Delicious apples.

As Indian consumer incomes have increased, the quantity and quality of the food they consume has also increased. The newly wealthy are shopping in supermarkets and upscale fruit and vegetable stores to find high-quality products. In addition to Red Delicious, these stores all sell some Gala, Golden Delicious, Granny Smith, and Pink Lady apples. They also sell Chinese Fujis and will sell New Zealand apples when in season.

India’s apple industry

India’s own apple industry is concentrated in the northern states of Kashmir and Hachal. Most domestic product is consumed fresh with little being processed. Over 40 percent of domestic product is said to have gone to waste as the apples move along the supply chain. India’s domestic processing industry is small, with less than 2 percent of food products being processed.

India is still a fresh market, and most processed food products are imported, including apple juice. The Indian government is aggressively promoting the development of its processing sector, although archaic laws on the size and scope of companies will limit opportunities until laws are revised. India also has laws that limit the height of buildings, using the rationale that more water pressure and more people concentrated in one building is too expensive. This has inflated land values and increased rents, making it nearly impossible to obtain office space in larger cities.

Much of Indian agriculture is irrigated, and water resources are constrained, making the monsoon rains essential. Farm size is also limited, averaging less than three acres per farm. It is possible for farmers to consolidate their land together, but there are limits on how much land can be accumulated in a single area. Due to land availability and current laws, developing large, efficient farms and orchards is quite challenging, but it is possible.

Cold storage is also limited, with only a handful of cold storage facilities suitable for apples in each major city. Imported apples are either sold immediately and moved into the market, or are placed in storage and sold to meet market demand. Few apples are imported directly by retailers. In general, most apples are handled by up to six brokers, distributors, and retailers before they reach consumers. More than 95 percent of imported apples are sold in small shops and by street vendors. The relatively few supermarkets and chain stores in India, which are typically located in malls and large shopping areas, supply only a small portion of the market. Until the economic boom, few supermarkets even existed in India.

Middle class

Large malls seem to have sprung up in major cities overnight. Department stores and specialty shops, including the world’s leading brands, are common and cater to the new middle class. The economic boom has created a middle class of between 50 and 300 million people, depending upon the criteria, with 200 million as the most commonly quoted figure. Nevertheless, a sizeable portion of India’s one billion people can afford to buy imported products, including high-quality imported fruit.

Does a growing economy and population add up to a booming market for Washington fruit? As India continues to open its economy and privatize state-owned industries, it is likely that it will continue to grow. India is projected to become the world’s third-largest economy with the world’s largest population by 2025. It is a democracy with a solid banking system and functioning court system. However, the fact that India runs on what some refer to as “India Standard Time” may make it challenging to do business. It may not be clear which tomorrow is being promised, or when someone will actually show up—9 a.m. may mean sometime this morning or maybe sometime today.

For U.S. companies, doing business in India is easier than in some countries since most Indians understand some English, and many are fluent. In India, English is a required class for nearly all students. This language convenience makes it much easier to get around.

Will India continue to grow, expand, and become a major player in the world’s agricultural markets? The answer is clearly yes, but with footnotes. As a democracy, it will change slowly, but steadily.

Will India be a competitor for U.S. agricultural products similar to China? Given limited water resources and its rapidly growing population, India is more likely to become a market rather than a competitor for most agricultural products, and especially Washington apples.

Wahl is director of Washington State University’s International Marketing Program for Agricultural Commodities and Trade Center at Pullman, Washington.