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Food Processing Goldmine:WAITING FOR URGENT PUSH, by Dr. Vinod Mehta,12 March 2008 Print E-mail

ECONOMIC HIGHLIGHTS

New Delhi, 12 March 2008

Food Processing Goldmine

WAITING FOR URGENT PUSH

By Dr. Vinod Mehta

Former Director, Research, ICSSR

India, one can say, is almost sitting on a goldmine of processed food. The country is the world’s largest producer of milk, the second largest producer of fruits and vegetables, a major producer of spices, tea and coffee and large livestock population and vast marine wealth. 

In fact, there is not only a potential vast domestic market for processed food but also a huge foreign market. Besides, it could become a top foreign exchange earner provided we follow appropriate policies and capture the foreign market. The effort required is totally indigenous, does not involve any import of any inputs to any significant extent and with little investment one can earn lot of hard currency. 

The world processed food business runs into billions of US dollars and India's share in it is a mere 1.5 per cent of the international food trade. The US processed food industry is a major participant in the global economy, active in both exporting and foreign direct investment. More than a third of the world’s top 50 food and beverage processing firms are headquartered in the US. In 2005, the U.S.  exported $28.8 billion of product and imported $29.8 billion. In other words, there is big market for processed food which if properly tapped can supplement the incomes of the farmers.

As we know, India as a signatory to the World Trade Organisation (WTO) has to open up its economy to the import of agricultural products from all over the world within a few years time.  Already one can see fresh imported fruit and vegetables as well as processed food items in many retail stores in India though their prices are four to five times higher than equivalent Indian products.

When the WTO agreement was signed it was said that the country stood to gain by the opening of the agricultural sector as the Indian agricultural products would be relatively cheaper than the similar agricultural products produced elsewhere. The reasoning was that other countries, especially the developed ones, would be forced to eliminate or reduce their subsidies on agricultural products while the subsidies on agricultural products in India are already much lower than allowed by the WTO.

This is true to a very large extent. The WTO has only opened up the opportunities to be exploited by us. However, whether India will be able to exploit this advantage will depend upon a large number of factors. The relatively lower prices, on their own, will not be of any help unless we make a sustain effort in the international markets and produce goods which are in demand in those countries.  This implies increasing the productivities of various agricultural products, improving their quality, tastes, etc., application of highly efficient processing technologies and improving the packaging of these products.

The foreign countries, which include both developed and developing countries, have now increased their pressure on us to open up the economy to their agricultural products sooner as the country now has a comfortable foreign exchange position. For instance Malaysia is keen to increase its export of palm oil while Mexico is eager to increase its export of soybean oil to India. Australia and New Zealand are looking for opportunities to export milk and milk products as well as kiwi fruit to the country. The US is looking for exporting its almonds and orange juice. India has allowed import of agricultural products but these countries expect much more from us.

It must be understood that the country will have to open up its economy to the import of agricultural products from these countries sooner or later. We cannot afford to ban their entry for long as the country itself is an exporter of agricultural products (though not up to their level) like basmati rice, fruit and vegetables, milk and milk products, tea, coffee, spices and so on. Notwithstanding, that the country is not yet a major player in these products in the international market even though it has the potential. Further, its record of consistency in quality, adherence to supply schedules is very bad which puts off the foreign importer.

This is a minus point with our exporters which comes in the way of tapping the export market. Thailand and Philippines are exporting pineapple juice on a large scale for the past several years while India is unable to do so on any significant scale because of the non-professional attitude of our business community. How can we enter the international markets with this kind of attitude?

The Government has already initiated policy measures to provide a boost to the processed food industry. In the last budget ---- the food processing industry was declared a priority sector, 100% FDI has been permitted through the automatic route and there is zero excise duty on a number of processed food items .

Though incentives have been provided in the past to encourage the growth of the food processing industry yet it is still lagging behind by international standards. With the new incentives as provided in the budget, the processed food industry can hope for a big boost. 

But there are other minus points. The food preservation technology in most of the cases is more than two decades old. Similarly, packaging of the products is much below the international standards.  On the top of it no attempt has ever been made to develop brand names in foreign countries. 

It is only for the past few years that some of the companies have started marketing their products in the international markets under their brand names. For instance, till recently Indian tea was being auctioned in bulk to foreign buyers rather than selling them in a packaged form. The Tata’s have now started selling their tea in a packaged form in the international market under its own brand names.

Similarly, the cooperative sector producer of milk and milk products, Amul, has also started marketing its products in the international market under its own brand name. But these are only few exercises in brand building and cannot be said to establish markets for Indian agricultural products in a very big way. 

Therefore, what the country needs to do immediately is to chalk out a concrete programme for the development of the processed food products industry so that the country can become a major player in the international market in the next three to four years. 

As a first step, we should concentrate on increasing the productivity of those agricultural products in which we have a comparative advantage. It could be basmati rice, tea, coffee or fruits like mangoes or bananas. Moreover, some of the energies of our agriculture research centres should be concentrated on developing high yielding varieties of these products. In fact, our agricultural scientists have successfully developed a new strain of basmati rice which provides 25 to 30% more yield per hectare without any compromise on quality or aroma.

The second step should be the development of new preservative technologies, which are of international standards and can prolong the shelf life of those products without any much refrigeration.  For instance, we are producing a large number of oranges including kinnow  yet 30% of this fruit goes waste as we have not been able to develop any technology to preserve its juice.  Therefore, before bottled orange juice from Florida (USA) enters the Indian market we must perfect the technology to preserve the citrus fruit juice in India so that we can compete effectively with the US producers not only in our own domestic market but also in the international market. 

The third step is to improve the food processing technology and bring it up to international standards. One public sector organization is engaged in the development of such technologies but it has had very little impact till date. 

Finally, the food processing industry will have to pay attention to packaging of the processed food products. At the moment the packaging of most of the processed food products is so repulsive that even if we have very good product to offer it will not sell in the international market because of its poor packaging. 

In sum, India has a comparative advantage in selling its agricultural products at competitive prices in the international market but it will not be able to capture the vast international market for various agriculture products without first improving the quality of its products and its packaging in every aspect.  We have a lot to learn in this respect from the South-East Asian countries like Thailand, Philippines and Malaysia, which have a well established food processing industry.  We must now move fast enough to take advantage of our comparative advantage in the agricultural sector. ---- INFA

(Copyright India News & Feature Alliance)

           

 

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