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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