Spicy business, sweet story March 2018 issue

Spicy business, sweet story

Cassia, a pungent spice used in many cuisines, has seen a surge in its imports over the last few years. The facts that it is cheaper than cinnamon, a similar spice, and that more and more consumables are using cassia as an ingredient are only driving the demand for the spice forward. Despite controversies surrounding its usage in certain medicaments, it continues to be a favourite amongst India’s spice importers.

By Anishaa Kumar | January 2018 Issue | The Dollar Business

 

From turmeric to cinnamon, from cumin to fennel, India is known the world over for its spices that find use across cuisines as well as several home remedies. Surprisingly, despite its ubiquitous presence in almost all Indian households, cassia, better known as taj in India, is hardly grown in India and is almost entirely imported.

Cassia, whose bark is used as a spice, is many a time mistaken for the cinnamon bark. The two spices are however derived from two different plants of the same genus. With their similar appearance, you may ask what is in a name? Well, there is a lot that differentiates the two. While cinnamon, (often referred to as Ceylon Cinnamon) found in Sri Lanka, is derived from the branches or bark of Cinnamomum Zeylanicum, cassia is derived from the bark of Cinnamomum Cassia. Cassia is also known as Chinese, Vietnamese or Indonesian Cinnamon, depending on its origin.

Cassia is many a times mistaken for
cinnamon as they look very similar.


The other difference is that cassia is more pungent and preferred in Indian curries and bakery items. Cinnamon, on the other hand, has both a sweeter taste and aroma than its cousin. Cinnamon finds use in several desserts as well as pharmaceutical products. Another difference between the two is the controversial coumarin content. Coumarin, according to Food Safety and Standards Authority of India (FSSAI), is a natural flavouring compound whose high dose is believed to be harmful. While cinnamon or ‘Ceylon Cinnamon’, contains little to no trace of coumarin, cassia contains high doses of the same. Despite health concerns being raised, there is still a large demand for cassia. So, what makes the product popular in the market and does the increasing demand make importing it a lucrative business?


It’s getting spicier


Globalisation has meant that there is much more intermingling of cultures now than in the past and that has meant that people are more open to trying recipes from other countries. That has in tandem meant that import of spices has increased across the globe. According to a study by P&S Market Research, the global demand for seasonings and spices is expected to grow at a CAGR of 4.9% between FY2015 and FY2020. The imports of cassia by India has also kept pace with the global trend and grown by almost 110.3% to $45.32 million between FY2012 and FY2017. The volume of cassia imported by India has also increased by 20.07% during the same period. Even when it comes to the total world imports of cassia, imports by volume has increased by over 80% between CY2012 and CY2016. Some big numbers, indeed!


Talking about the reasons behind the increase in imports, Prashant Sethi of Jaipur-based August Industries, an importer of cassia, says, “There is a bit of cassia being grown in India in the southern part of the country, but the production is not enough to fulfil the growing domestic demand. As the usage increases, we expect imports to grow further.”


Cassia, according to some, has also benefitted from the confusion between cinnamon and cassia. Cinnamon is used in a variety of ayurvedic preparations to lower blood pressure and control cholesterol. But the cinnamon being referred to here is Ceylon Cinnamon and not cassia. The low price of cassia and the lack of awareness about the difference between both spices has allowed some unscrupulous manufacturers to substitute cinnamon by cassia in ayurvedic products. In reality, while cassia finds use in cooking and baking, it does not possess the healing properties that are characteristic of cinnamon. As smaller quantities of cassia are used in cooking, the harmful effects of coumarin are not an issue.

Cassia and cinnamon have long been under the watch of the Food Safety and Standards Authority of India (FSSAI). In fact, in November 2016, FSSAI released a document highlighting the differences between the two to avoid the confusion amongst their users. According to the document, to be classified as cinnamon the coumarin content should not be more than 0.3% by weight.

The quality challenge

India is currently the leading importer of cassia in the world with a 30% share in world imports followed by US, Bangladesh and Japan. The biggest source of imported cassia for India is Vietnam – the country currently fulfils about 86% of India’s total import requirement – followed by China and Indonesia.

Even though there are large quantities of cassia being imported into India, importers like Gopaal Ahuja, Chairman of the Mumbai-based Komal Exotic Spices, says that finding exporters who follow proper quality standards is a challenge. He explains, “As an importer, I face the challenge of getting my cassia cleared by the FSSAI, as cassia are not completely dried by some Chinese exporters before shipping. And by the time the shipment reaches us, the moisture from the products evaporates and recondenses on the goods in the container, leading to the formation of fungus. Fungus on vegetable products leads to the formation of aflatoxin which is a harmful carcinogen.” This is one of the reasons, Ahuja says, why many importers like him do not prefer to import the commodity from China. Exporters, he says, need to adhere to the rules and regulations and not resort to shortcuts. It is also difficult to make out the quality in the consignments that come from China as they are bundled, pressed under a hydraulic press and tied together with a belt. Many a time, exporters say, they have found various impurities including pieces of plastic within the cassia consignment.

Imports from Vietnam, on the other hand, do not have such issues as they are packed in a transparent box and not pressed into a bundle making it is easy to inspect for impurities. He however adds, “If Vietnam starts following China’s example, we may be forced to find a new supplier from Indonesia or may even reduce our imports.”

Rajiv Jaiswal, Head – Exports and Imports, Raj Exports, differs and says that when it comes to quality, there is not much difference between the Vietnamese and the Chinese products. Any difference in quality, he says, has to do with the supplier, as at the end of the day the climate and geographical location of both countries are similar.

Another reason why Vietnam is preferred over China has been the absence of an import duty on imports from Vietnam. Under the FTA with the ASEAN nations, Indian importers do not have to pay an import duty while importing from Vietnam and Indonesia which are both members of ASEAN. Importing from non-FTA countries like China on the other hand means that the product suffers a total duty of about 36%, making Chinese variety of cassia uncompetitive in the domestic market.


Spreading aroma


Despite the challenges arising out of customs clearances and food safety regulations, importers are upbeat about the future of the business. Ahuja says that expectations for a growth in demand in the future has a lot to do with the rise in incomes and changing food habits of people. The upwardly-mobile population has taken to consuming a number of sweet and savoury items that require the use of cassia. Cassia is also a part of many Chinese recipes that have found favour with Indians.

Scant domestic availability, absence of import duties, and ease of import in addition to good marketing by Vietnam has attracted more importers towards cassia. “Many Indian traders, who were earlier my clients, have started to import cassia by themselves,” says Ahuja.

Currently, importers have to pay a 5% IGST. Ahuja says that IGST has impacted their working capital and hopes that the government is able to introduce an e-wallet scheme similar to the one that is being introduced for exporters. He explains, “The way the finance minister has declared the creation of the e-wallet for exporters, an e-wallet can be created for importers as well. This way, the GST credit, that we have, can be used to pay IGST when we import the next consignment of goods.” Sethi however believes that the introduction of GST has been beneficial as it has reduced paperwork.



While profit margins are typically low, importers believe that higher margins can be garnered if the right product is sold. Ahuja explains, “If I am selling to a quality-conscious customer, then I do an inspection and quality check even after receiving the product in India. We also grade the cassia and sell the better grades to the more conscious client who is willing to pay a higher price for better quality, thus yielding better margins. But if I am selling to traders who are not bothered by impurities or minor issues in quality, then the margins are obviously lower.”

Currently the domestic price of split cassia hovers around $2,000-2,200 per MT and broken cassia around $1,700 per MT. As the product is imported in bulk, importers say that they are okay with profit margins as low as 5%. Jaiswal adds that cassia is one of the products that needs to be stocked, even though the profits may not be too high.

Sethi is confident of seeing a growth in demand and says market trends suggest that future is bright for cassia in India. But he cautions that in order to be successful one needs to keep a regular supply to earn the loyalty of clients even if one makes a loss at times.
With India’s love for spices being a constant and new cassia products being introduced, the demand for cassia is bound to only grow in the near future.

If importers are able to secure reliable suppliers and maintain quality, this pungent smelling spice can offer

sweet profits!

 

“Getting FSSAI clearance is a big challenge”

 

Gopaal Ahuja
Chairman, Komal Exotic Spices

 

TDB: Are there any challenges that you face while importing cassia into India?

Gopaal Ahuja (GA): Yes, as an importer, I face the challenge of getting our goods cleared by the Food Safety and Standards Authority of India (FSSAI). The other challenge is that many a times, the cassia are not completely dried by exporters before shipping, and by the time they reach us, the moisture from the products evaporates and recondenses on the cassia in the container, leading to the formation of fungus. Fungus on vegetable products lead to the formation of aflatoxin, which is a harmful carcinogen.

So, this process of drying by the packers has to be thorough, but many Chinese exporters do not follow this norm. It is because of these reasons that China has lost ground to Vietnam. Vietnam is presently our preferred sourcing destination because of the quality of their product. In order to build a good reputation exporters should adhere to better quality standards. Now, if Vietnamese exporters too start flouting norms, maybe we will have to find a new supplier from Indonesia or even reduce our imports.

TDB: Has GST impacted your imports? Has it affected the pricing?

GA: GST has made my work a little more difficult because I have to pay IGST at the time of import. Earlier, I had to pay VAT after selling the goods. So, I used to literally get the tax from the customers, but now a part of my working capital goes toward IGST. So, my funds are constrained. Ever since GST has been implemented, my books are always in the credit of GST. I am having to carry this credit. Instead of doing that, the way the finance minister has declared the creation of the E-wallet for exporters, an E-wallet can be created for importers as well. This way, the GST credit that we have, can be used to pay the IGST when we import the next round of goods.

TDB: Apart from quality, what makes Vietnam the preferred sourcing market?

GA: We have been importing cassia for almost 30 years now. Earlier, we used to import from China. Subsequently, the Indo-ASEAN FTA was signed. So, cassia from Vietnam became duty free. That is one more reason to buy from Vietnam. Chinese cassia is more pungent and all things being equal we would have preferred to import Chinese cassia. But the import duty from China is a deal-breaker. Also, Chinese packers and exporters are less reliable as far as genuineness of the material is concerned. Vietnamese exporters are more reliable and their cassia is packed loosely in boxes. So, detecting adulteration is easy. Chinese cassia, on the other hand, is pressed under a hydraulic press and then bundled up, making detection of adulteration difficult. Often, we have found pieces of plastic in their packets.

 

   

“The Indo-ASEAN FTA allows duty-free imports”

 

Prashant Sethi
Owner, August Industries

 

TDB: Where do you import cassia from?

Prashant Sethi (PS): We import from Vietnam, and also from Indonesia. There is a small quantity of cassia being grown in the southern part of India, but the production is not enough to fulfil the needs of the population here. That is the reason India imports from China and Vietnam. Indonesia is also gradually becoming an important sourcing market.

TDB: Many say that the quality from China tends to be inferior. Your take?

PS: I have not imported directly from China, but I have seen the quality in the market. The quality depends more on the exporter than the country. There can be inferior quality from Vietnam too. All types are available in the Indian markets. You also get good quality from China but the problem with China is that we have to pay an import duty. For Vietnam and Indonesia, there is no import duty and cess because of the India-ASEAN FTA.

TDB: Do you face any problem while importing cassia?

PS: The import of cassia is relatively easier if you have a good quality product. The main issue is plant quarantine and customs. Otherwise, it is a rather smooth process. If you have fully paid values and are not under-invoicing, there are no hassles. When it comes to plant quarantine, they take out the samples and if they are as per regulations then there is no issue. Earlier it used to take 10-15 days for clearance, but now the process is much quicker and more streamlined.

TDB: What factors influence the price and demand of the product?

PS: The consumption is increasing every year. We are also seeing an increase in price. A lot depends on the environmental conditions in China and Vietnam. When there is heavy rain in Vietnam it may impact the product quality and price. A lot of shipments get held up due to various factors and this also impacts the quality and price. The Indian market closely follows international trends – and the supply and demand situation impacts prices, as is the norm.

The prices of cassia also depend on the variety of cassia that one is importing – broken, split, smashed, etc. The selling price in the domestic market starts from Rs.140 a kilo and there is a year-round demand.

TDB: Do you expect demand to change?

PS: We expect to see a growth in demand and in our sales. You have to keep working in the business – and be on your toes. Sometimes an importer may make losses, but it is important to continue with the business. That is how you build a reputation and gain loyal customers. If you stay on course, you will make profits and see your business grow.

 

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