Indian flavouring agents exports up 35% to Rs 3,307 crore in FY21, but logistics, lower incentives hurt

Representative image (Source: ShutterStock)

India’s export of oleoresins, or spice extracts that lend colour and flavour to various food products, rose sharply in FY21 as demand for processed food and snacks increased during the pandemic, but industry executives say the gains have been nullified by logistics hurdles and reduced export incentives.

Spice oil and oleoresins are the fourth-largest export earners among Indian spices. In FY21 they showed a robust growth of 27 percent in volumes and 35 percent in value from a year earlier at 16,450 tonnes valued at Rs 3,306.75 crore. This is in comparison to the average annual growth of around 10 percent.

“Increased consumption of processed food like noodles and snacks at home has helped increase the market share of oleoresins across the world, particularly in Asia. This has compensated for the decline in the demand from the hotel, restaurant and catering (Horeca) sector," said Ranjit Ramachandran, CEO of Plant Lipids.

The processed food seems to have shed its junk tag and has found wider acceptance. “Several positive aspects of spices like development of immunity and weight control have helped spur demand growth," he said.

Globally the spice oleoresin market is estimated to be about $1.5 billion, growing 4-5 percent annually. India is the major supplier accounting for the lion’s share of the world oleoresin market. Over half-a-dozen companies from India, many located in Kerala, dominate the spice oleoresin sector.

Major international flavour and fragrance houses such as Givaudan and Firmenich in Switzerland, International Flavours and Fragrances in the US and Symrise in Germany are prominent buyers of Indian oleoresins.

Export of chilli, turmeric, ginger, pepper, turmeric and nutmeg oleoresins has seen more traction during the time of pandemic, according to Viju Jacob, MD of Synthite Ltd., largest oleoresin exporter from India. “Lot of oleoresins, particularly that of turmeric, have found increased use in the nutraceutical sector, which is growing at a rapid rate,” he said.

While exporters agree that shipments have grown significantly, they attribute the rise in earnings partly to the increase in the raw commodity prices. Major spices such as chilli, pepper, cardamom became costly during the last year leading to an increase in the value- added product prices as well.

However, they seem to be unanimous in their opinion that logistics problems and lack of incentives have wiped out all the gains in the year. “The freight rates from Kochi to USA have zoomed from $1,800 to $20,000 during the year. But after paying it we still have 3-4 months backlog,” said Geemon Korah, executive director and CEO of Kancor Ingredients.

Persisting shortage of shipping containers has added to the difficulties. Exporters say it has been a learning experience as they are unable to exert any control over the logistics issues with the shipping companies calling the shots. “In the present situation we are even thinking of leasing couple of ships for our transport. That seems a much better solution," observed Viju Jacob.

The replacement of merchant export incentive scheme (MEIS) with remission of duties and taxes on export products (RoDTEP) has not cheered exporters. “The incentive is around 0.8 percent under the new scheme against 3 percent or more earlier. As a result, we are losing competitiveness to countries like China and Vietnam. The export benefits in China are around 16-17 percent," Korah said.

He reckons that it will take another year to recover from the mess and unless the government provides them support, other countries are likely to encroach into sectors like oleoresins where India has been traditionally strong.