The advent of the coronavirus (COVID-19) pandemic had a profound and lasting impact on many aspects of everyday life around the world, from home working to the growth of online shopping to heightened health awareness. It also thrust the organic food industry into the limelight, as consumers increasingly looked for foods that would benefit their health and not damage the environment.
In India, according to a report by IMARC Group, the organic food market generated USD 1.28bn in 2022. This is estimated to expand at a CAGR of 23.8% before reaching USD 4.60bn by 2028.
While growth in the country’s organic food segment is steady, M&A activity has been marked by peaks and troughs. Overall deal volume in India jumped to USD 15m in 2022, according to Mergermarket data, its highest level since 2017. However, in 2023 year-to-date (YTD), things have been significantly quieter, with only USD 1.77m-worth of deals. Total deal volume since 2011 stands at USD 60m, per Mergermarket.
Growing pains
While the market remains in a nascent stage, organic food producers face a variety of challenges. Most farms in India are small in size, explains Ishit Saurabh Pilani, co-founder of Organic Roots. This means that logistics are problematic in such a large country, forcing up costs and preventing economies of scale from kicking in.
Current manufacturing capabilities are also limited, says Umesh Uttamachandani, co-founder and chief growth officer of DevX Venture Fund, and this acts as a deterrent to new entrants and those existing operators looking to expand.
He adds that in a country with a population of 1.4 billion people, many consumers are still unaware of the benefits of organic foods. Moreover, he also expects price points to fall in time from their current high levels, as economies of scale take effect, providing tangible momentum for the industry.
But change is coming. Measures such as the government’s Paramparagat Krishi Vikas Yojna (PKVY) plan encourages cluster-based organic farming, says Pilani. New programs and regulations around the industry should also help to foster growth in organic farming, helping to empower farmers economically.
Indeed, the whole supply chain is on the verge of being developed and taking a major step forward, says Uttamachandani.
Growing for it
Despite concerns and setbacks as India’s organic food market develops, the segment has attracted both domestic investors, as well as international interest from the Netherlands, the UK, the US, and Switzerland, according to Mergermarket data.
Deals include Netherlands-based FMO proposing to invest USD 24m in a Mumbai-based organic goods producer, Suminter India Organics, in August. In March, the latter raised USD 53m from Morgan Stanley India Infrastructure and IFU, per reports.
In April, a Pune-based producer of organic farming products raised USD 1.7m in a pre-Series A fundraising from high-net-worth individuals (HNWIs) such as Virendra Sehwag and Akshay Kumar.
Organic Roots is set to kick-off its own Series A fundraising process in the next 12 months amid large-scale expansion plans, it told this news service in September.
DevX is seeking to invest in companies that are looking to beef up the supply chain, which should attract more entrants to the sector.
As Uttamachandani notes, India’s organic food industry offers a tremendous opportunity for international investors not least because the country itself has a huge capacity to grow these products.
