India’s Opportunities: Agricultural & Food Value Chain | Tractus

India instituted retaliatory tariffs on U.S. agricultural products in 2019 following the imposition of tariffs from the Trump Administration on Indian steel. The tariffs, which added as much as an additional 20% to existing levels, severely impacted the export competitiveness of U.S. agricultural products, including pulses, apples, and tree nuts. The retaliatory tariffs have now been lifted, and exporters are seeking to regain a foothold in this strategic market that has seen immense growth and new trends adopted in recent years.

The United States lost substantial market share in all the commodities that were targeted after the retaliatory tariffs. Apple exports fell by 96%, pulses by 99% and in-shell walnuts by 34%. Moreover, as exports declined, the Indian consumer continued to change. In the period since retaliatory tariffs were instituted, India has become the world’s most populous country, seen its GDP rise by an average of 7% annually, and become the world’s 5th largest economy, adding millions of its population to its growing middle class. During Covid-19, consumers also adopted new eating habits, and while the trend of healthier snacking will benefit U.S. exporters of these products, India has seen an increase of exports from U.S. competitors.

Apples

The United States had been a major exporter of apples since 2013, vying with China for the top exporter, which was realized in 2018 when the United States exported its highest volume at 147,164 MT, a value of $162 million. As the tariffs took hold, they eroded the competitiveness of U.S. apples. Declines occurred immediately, and in 2019 exports were 63.7% lower at 53,438 MT. Losses continued through 2022 when the U.S. recorded its lowest ever export volume of 5,043 MT, a 96% decline from the highs of 2018.

Indian demand for apples continued to grow after the tariffs were instituted and importers found new opportunities that were not impacted by the higher tariff rates that U.S. exporters faced. As the United States dropped to the 11^th highest exporter by 2022, exports from Turkey, Iran, Chile, and New Zealand all increased and captured market share, proving effective competitors that U.S. exporters will continue to face in the market.

Pulses & Lentils

Pulses are a mainstay of the Indian diet, and India is the world’s largest producer and importer of pulses. Pulse imports climbed substantially between 2013-2017, and in reaction to increasing import volumes, the Indian government adopted a protectionist policy that raised duties and installed quotas to spur consumption of domestic crops.

Despite these restrictive measures, the United States continued to be a major exporter of pulses, supplying the higher priced green and yellow peas as well as lentils and chickpeas.  During much of the period up to 2017 the United States was a Top-5 exporter, with the highest volumes exported in 2016 at 321,909 MT and a value of $182 million. Tariffs, however, led to declines in exports, which reached their lowest levels in 2022 with 40 MT exported, a decline of 99.9% from 2016. Meanwhile, competitors from Mozambique and Tanzania have entered and increased their market share, as exports from long-standing partners including Australia, Canada, and Myanmar continued to rise.

Walnuts

Although import volumes decreased following the retaliatory tariffs, the United States continued to be the second largest exporter of in-shell walnuts to India. Since 2016, U.S. exports of walnuts declined from 15,766 MT to 3,713 MT. The United States ceded its market share to Chile, whose export volumes continued to climb following the introduction of retaliatory tariffs on U.S. exports.

Impacts of tariffs on shelled walnuts were less consistent, and even despite the retaliatory tariffs, up until 2022 U.S. exports to India generally increased. In 2020, the United States saw its highest export volumes of shelled walnuts at 918 MT, a value of $5 million, and was again the largest exporter in 2021. Exports from Iran, Chile, the United Arab Emirates, and Vietnam have, however, been rising, and by 2022 the United States saw its exports decline to 93 MT, an 89% decline from the previous year, as competitors’ exports rose.

Challenges for Foreign Players

The retaliatory tariffs made exports from the United States less competitive, and Indian importers and businesses turned to new supply sources. Following the removal of the tariffs, U.S. exporters of apples, pulses, and walnuts will no doubt be excited to re-enter the world’s 5^th largest economy and provide goods to its consumers, but there remain challenges to the United States regaining its competitive edge.   

Chiefly, relationships with importers can be sticky and cost focused. Importers often do not see the higher profit margin that premium U.S. products can receive in the market, and instead focus on the landed cost and tariffs. As new competitors entered relationships with Indian importers, U.S. exporters will need to engage and position their products as premium goods that provide quality and consistency. Engaging with importers therefore requires a long-term strategy that begins with qualifying those importers and developing marketing materials that differentiate U.S. products from those of their competitors.

The challenges of India often relate to its size, distribution structure, and transport logistics. India’s food and grocery retail sector stands at a $570 billion, but the number of modern trade supermarkets is only 22,122 as of 2022. As much as 88% of all transactions occur in the 13 million traditional stores that are spread throughout the country, and these shopfronts would not be the locations where imported fruits and vegetables are sold. Entering the retail sector can also be challenged by the limited capacity of cold-chain services. The lack of well-established distribution centers leads to a great deal of food waste in India, especially for fruits and vegetables. Annually, post-harvest waste accounts for as much as $18 billion in losses.

Identifying qualified importers that can effectively distribute agricultural products to retailers and food processors in the main commercial centers of India is key to realizing success. Positioning U.S. products to those importers takes a long-term strategy that will market U.S. products effectively and differentiate them to competitors based on local market context.     

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How Tractus Can Help

Tractus has over 25 years of experience advising our public and private sector clients on their market expansion strategies and implementation plans, from developing tailored market research reports and identifying opportunities for growth to designing market entry strategies and supporting distributor identification and qualification, sales outsourcing, and entity establishment.

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Authored by

James Meisenheimer is Senior Consultant Manager based in Thailand. Anuj Kumar is a Senior Consultant based in the India office.