Functional foods in India

The relationship between food and health has long been known to exist, and today the fundamental concept of food is changing from one involving the maintenance of life to one maintaining and promoting better health and quality of life by preventing chronic diseases. The increasing interest in health provides investment opportunities in health food categories in many countries including India.

Functional Food: Concept and Origin
The concept of “functional food” was introduced in Japan in the 1980s. Since then various efforts have been made to define functional foods. With no globally accepted definition as yet, FSSA 2006 definition is relevant in Indian context.

Broadly “Functional food” may be defined as a food which influences specific functions in the body that may provide added health benefits or remedy from some diseased condition following the addition/concentration of a beneficial ingredient, or removal/substitution of an ineffective or harmful ingredient. Foods might inherently possess these supposedly beneficial qualities, or they may be fortified/modified and/or genetically altered.

Foods for special dietary uses or functional foods or nutraceuticals or health supplements means: (a) foods which are specially processed or formulated to satisfy particular dietary requirements which exist because of a particular physical or physiological condition or specific diseases and disorders and which are presented as such, wherein the composition of these foodstuffs must differ significantly from the composition of ordinary foods of comparable nature, if such ordinary foods exist, and may contain one or more of the following ingredients, namely (i) plants or botanicals or their parts in the form of powder, concentrate or extract in water, ethyl alcohol or hydro alcoholic extract, single or in combination; (ii) minerals or vitamins or proteins or metals or their compounds or amino acids (in amounts not exceeding the Recommended Daily Allowance for Indians) or enzymes (within permissible limits); (iii) substances from animal origin; and (iv) a dietary substance for use by human beings to supplement the diet by increasing the total dietary intake.

The functional food also need to satisfy following conditions: (i) a product that is labelled as a "Food for special dietary uses or functional foods or nutraceuticals or health supplements or similar such foods" which is not represented for use as a conventional food and whereby such products may be formulated in the form of powders, granules, tablets, capsules, liquids, jelly and other dosage forms but not parenterals, and are meant for oral administration; (ii) such product does not include a drug as defined in clause (b) and ayurvedic, sidha and unani drugs as defined in clauses (a) and (h) of section 3 of the Drugs and Cosmetics Act, 1940 and rules made there under; (iii) does not claim to cure or mitigate any specific disease, disorder or condition (except for certain health benefit or such promotion claims) as may be permitted by the regulations made under this Act; (iv) does not include a narcotic drug or a psychotropic substance as defined in the Schedule of the Narcotic Drugs and Psychotropic Substances Act, 1985 and rules made thereunder and substances listed in Schedules E and EI of the Drugs and Cosmetics Rules, 1945.

Functional food in Indian Market

Functional foods which are already available in the Indian market include those with removal of an allergic protein (gluten free atta), those containing live bacteria (probiotics, prebiotics) such as Yakult health drink and Amul’s butter milk or those containing some health nutrients such as energy bars, juices and soy based products.

In addition to the various health benefits, functional foods also present economic benefits as they give higher profitability margin as compared to conventional foods. Retail prices of functional foods are typically 30 to 500 percent above the comparable conventional foods and the global market size has been estimated between US$30 and US$60 billion with Japan, United States, and Europe being the leading markets. Developing countries have started to emerge as exporters to cater to the increasing demand in the developed countries. Moreover, demand for functional foods within the developing countries is growing, presenting a lucrative opportunity to develop domestic markets.

Due to exceptional growth of the Indian economy and higher purchasing power parity (PPP) of the consumers in the last decade, consumers are moving towards specific functional foods. Urbanization, changing population demographics and a strong desire among Indian consumers to maintain a healthy lifestyle are additional factors driving this market. Although this is a new concept in our country and the market is still in infancy but the demand for functional foods would continue to increase due to their specific health benefits and Government’s plan to invest $ 21.5 billion in food processing industry in next five years.

Industry analysts such as Frost & Sullivan and Netscribes (India) Pvt. Ltd. also predict a continued growth of the sector in the future. With young Indian consumers earning and spending more, India is expected to become the fifth largest consumer market in the world by 2025 from being the 12th largest currently. This presents huge opportunities for the functional foods sector at various stages of the supply chain in both new and niche segments. Beverages and dairy will drive this growth of functional foods in India.

Presently only a few functional food players are present in the market. However, due to higher profitability margins, there is a huge scope for the new entrants in this industry. But the entry of such players and their success would depend upon their capability to develop a specific idea (particular functional food), the patent or licensing if any, the complexity of the process involved in synthesis (fortification, plant extraction, chemical synthesis, strain development and isolation, issues of strain stability etc.), the extent of benefit achieved by the consumers, its relative cost as compared to the traditional form of that food and also the economies of scale involved in the production.

The economic returns from functional foods could be so high that these can offer improved opportunities for all the links of the supply chain starting from producers and up to retailers. Apart from this, functional foods can be an opportunity for economic growth of our country as India is endowed with rich biodiversity and traditional knowledge of the health effects of certain indigenous plant species.

Potential arenas for entrepreneurs

The success in the functional food business requires huge investment in Research & development and high technical expertise which is presently lacking in the Indian context. Apart from CFTRI (Mysore) and NDRI (Karnal), not many public sector organizations are working on the research and development of functional foods. Regulatory clearances of the functional foods are other important criteria for the success as unclear regulations about new functional ingredients and their health claims may cause hindrance in the growth of this sector.

 Input specificity is another important factor determining the performance of a functional food. If the availability of inputs (required for conversion of traditional foods to functional foods) is limited, then the functional foods’ producer loses control over the business and the control goes in the hands of the input supplier. But for these specific inputs, patents and licensing might play an important role. Even if the business is not input specific, shifting to another input might require more expenditure in research and development of the application technology using new input. This would again make the functional food producer more vulnerable.

Apart from specific inputs, the non-specific inputs are also important as the functional food producer has to compete with traditional food producers for these inputs. In case, these inputs are commodities, then their cyclicity in price, quality and availability need to be taken care of. Moreover in cases where the major traditional food producers are also the suppliers of these inputs, the functional food producers would become dependent on their competitors.

For a successful business, USP of the functional food should be very specific and should cater to the clearly defined consumer segment. If the USP of the product does not fulfill the specific needs of the consumer, then the consumer would not prefer to spend higher and would switch back to the traditional form. Moreover, Indian consumers are currently not clear about their status as food supplements or pharmaceuticals. Also due to regulatory frameworks, labeling and marketing of functional foods further creates confusion among the Indian consumers. Hence, the acceptance of functional foods in the Indian scenario is not as high as in the western countries.

Currently, there is no direct form of competition in case of specific functional foods as there are a very few players in this category. But in case a functional food has no clear differentiation from the traditional food form, competition from the latter would be severe. Even if a functional food has very specific attributes but it does not serve a clearly defined segment, chances of competition from the makers of traditional food forms are high. Hence, the launch and marketing along with awareness regarding the specific attributes of the functional food would play a very crucial role in the success or failure of a new entrant.

The strategy for success of functional food will be one where functional beverage manufacturers, pharmaceutical companies, nutrition companies, and food additives companies cooperate amongst themselves and comes up with a concept/product that is healthy, offers great flavors, and which is palatable as well as affordable.

MandeepAhuja (PRM-28), Assistant Manager (Agri-business), IL&FS Cluster Development Initiative, Mumbai, E-mail:


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