How to Set-Up an Organic Food Business in India

Currently, India’s organic food industry is valued at USD 1.3 billion. India contributes a relatively small share in the global organic food market (valued at USD 227 billion). However, increasingly Indians are realizing the significance of chemicals and fertilizer-free food items, driving demand for organic food consumption in the country. The pandemic has also reinforced the idea of consuming healthy and chemical-free foods. 

The overall organic food market is growing at a CAGR of 16.6% and is expected to reach USD 2.8 billion in the next 5 years, as per the research conducted by India watch. 

Besides, the Indian government is taking great initiatives to strengthen this sector. The government is generating awareness among the people about the benefits of organic food and fostering innovation in the sector. 

As the demand for organic food is growing, the organic food industry has emerged as a profitable business opportunity and is currently one of the viable business segments for budding entrepreneurs. Lured by the underlying potential, many new entrepreneurs are planning to enter into the organic food business.    

Meanwhile, it is also essential to have in-depth knowledge of how to start and efficiently run an organic food business in India. To start an organic food business in India would require various licenses and permissions from several regulatory bodies. 

Essential Certifications required by the Organic Food Businesses 

First of all, businesses before setting up an organic food company in India need to seek permission from the concerned government bodies. The Food Safety and Standards Authority of India (FSSAI) keeps an eye on the organic businesses and make sure that businesses obtain the following two certifications:

Participatory Guarantee System (PGS) that is provided by the Ministry of Agriculture - PGS is a certification scheme for organic foods and is an internationally recognized organic quality assurance like the ISO 9000. It is implemented and controlled by the committed organic farmers through active participation with the consumers.

Farmers Welfare and the National Program for Organic Production provided by the Ministry of Commerce and Industry - It is a certification scheme for organic farmers initiated to assist the farmers in growth in both the domestic and the international markets. 

Labeling of Organic Foods

Every organic product should essentially contain the Indian Organic Certificate on its outer packaging and the businesses should also voluntarily obtain the India Organic logo for their products. The organic food product label contents should include the following details according to the Food Safety and Standards Regulations, 2011:

• Name, ingredients, and the nutritional values of the organic food product
• Food additives used in the food product
• Whether the organic product is a veg or non-veg item
• Net weight of the product
• Batch no, Lot no, and code no
• Manufacturing date
• Expiry date
• Instructions to use

Food License required by the Organic Food Businesses

FSSAI provides the following types of food license to organic food businesses in India that is valid for the period of five years.

• Companies that have a turnover of less than INR 1.2 million get FSSAI Registration
• Companies that have a turnover of more than INR 1.2 million get FSSAI State License
• Companies that have a turnover of over INR 200 million get FSSAI Central License

The organic food business is also supposed to obtain a state license from the state government in which they are operating along with the permissions from the health departments. (A trade license is required for any food item business in India.)   

Documents Required for Applying for the Food License 

Organic food businesses to set up in India require the following documents:

Any one of these ID proofs like PAN Card, Aadhar Card, Voter ID Card, or Ration Card.

• Business Certificate
• India Organic Certificate
• Permission from State Health Department
• Memorandum of Association
• Articles of Association
• No Objection Certificate
• Bank statements

Steps to Start an Organic Food Business in India

The major steps of starting an organic food business in India are as follows: 

Identify the market/ location – To start an organic food business in India, business owners first need to find the right market/ location to set up the business. They should ideally start their operation in locations, where consumers are aware of the benefits of organic food and hence are interested to buy

The price gap between normal food items and organic food is narrowing, yet the latter are priced a little higher than the former. The prime consumer base of organic food in India comprises educated, mid-to-high income, health-conscious households. Businesses should ensure that the location chosen has a high footfall of potential consumer profiles. 

Demographic and behavioral profiling of the potential consumer base can also be helpful, despite taking additional time. Likewise, businesses should also study the existing competition in the location and track their recent performance. Access to competitive intelligence can help in growth strategy formation. 

Find the Store facility – After selecting the market,  now is the time to set up the store. Business owners should choose the right store location and accordingly design the layout. They should read the document of the lease carefully and understand all the terms and conditions.  The interiors of the store should be thoughtfully designed that is aesthetically appealing as well foster overall productivity. 

Apply for Licenses and Registrations – For starting an organic food business in India, certain formalities and legal requirements need to be fulfilled. The legal requirements are:

• Obtain Trade License or permit from the health department
• Obtain Certification from the Organic Trade Association for Organic Food Store 
• Obtain License from the FSSAI
• The owner should obtain Employer Identification Number
• Select the type of business format that they wish to start
• Apply for GST registration if the business has a turnover of over Rs. 20 lakhs for the previous Financial Year
• The owner should apply for a PAN number
• The owner should open a Current Bank Account for the business

Decide the categories to be sold – After carrying out detailed market analysis and research, the business owner should now decide about the organic food category/ categories to be sold. This is essential because this will help them choose products that will prove profitable for their business keeping the current market trends in the mind. There are numerous organic food product categories available such as cereals & millets/ oilseeds/ fruits & vegetables/ pickles, jams, etc/ tea, coffee, and other drinks/ health supplements, etc. 

Businesses should carefully study various categories and identify the right product mix. Once the categories are chosen, the business also needs to secure its supply lines by getting in touch with the right distributors and suppliers. It is advisable to learn properly about the pricing, terms & conditions of the suppliers, credit support, etc. 

Pricing Strategy – A lot of calculations are required to set the optimal price of the product. The products should be affordable so that they can quickly penetrate the market. Yet it should be priced in such a way that can cover the fixed and variable costs of the business. If the products are priced too little, then it might undermine profitability. (Business owners and investors need to be aware of this.)

Hire Experienced and Trained Staff- Organic food is an upcoming business and hence it is essential to hire the right kind of human capital. The recruitment process will involve hiring sales and marketing staff, operational staff, food experts, etc. Professionals with sectoral knowledge are highly recommended. 

Marketing of the Product – A prudent marketing and channel selection strategy is critical for the success of the organic food business in India. Alongside regular marketing, food entrepreneurs need to study carefully digital marketing, social media strategy, influencer marketing, video marketing, etc. as they can play an instrumental role in promoting their business. There has to be a right mapping between customer profiles and the marketing strategy adopted. A prudent marketing strategy targeting the right customer segments can render better ROIs. 

Similar to marketing strategy, channel strategy is also very essential. Identifying the right channel is the cornerstone to the success of business in India. Entrepreneurs need to identify the right channel approach- Online/ Offline/ O2O (Online to Offline) to reach out to their customers. 

India’s consumer internet is evolving fast and organic food entrepreneurs, who will make an incremental investment in building the right digital assets will reap the benefits in the long run.  

How India Watch can help?

The India watch is India-based research and consulting house, which helps indigenous and international businesses to establish, grow, and evolve in the Indian market. Alongside a host of other sectors, we work with food companies and offer them custom research,  consulting, and marketing solutions. Our services include, 

• Tailor-made market research services for food companies and suppliers to learn about the business ecosystem in India, gain competitive insights, and acquire market intelligence.
• Business research and data advisory services for investors and private equity companies looking to invest in the Indian food/ food processing industry. 
• For food companies, we can work as their strategic partner and help them acquire relevant licenses and assist in the company registration process.
• We can create feasibility studies for food enterprises comprising financial & market feasibility, market assessment, cash flow projection, etc. 
• We can assist in identifying, evaluating, and selecting the right location for manufacturing.
• For any further queries, feel free to drop us a mail at info@theindiawatch.com