India News and Features Alliance (INFA) - Weakest Link In Reforms:Processed Food Industry Needs Boost, by Dr. Vinod Mehta,19 January 2006

After the opening up of the Indian economy, India has been importing agricultural products, including processed agricultural products in a small way. Over the past few years, a number of multinational companies have also started exporting processed food in the country. With the middle class growing and their living style changing, the demand for processed food will grow. Therefore, unless the Indian entrepreneurs taps this market, the foreign MNCs will take over the domestic market for processed food.

India has a cost advantage in a number of agro-based products. The relatively lower prices on their own will not be of any help unless we make a sustain efforts 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 those agricultural products.

It has been more than ten years when India signed the WTO Agreement and yet there are no indications that the country is doing anything to take advantage of the provisions relating to agriculture. It has been mentioned several times in this column that the lack of any agricultural policy is the weakest link in our economic reforms. Even though one has been hearing for the past several years that a new Agriculture policy is on the anvil yet no policy announcement has been made so far.

The foreign countries, which include both developed and developing countries, are making sustained efforts to export their agro-based products to India. For instance Malaysia is going full steam to increase its export of palm oil while Mexico is keen 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 other agricultural products to India. The USA and European Union are also looking for exporting their agro-based products to India.

Since India cannot stop the entry of their products any longer it must make efforts to increase the export of its own agro-based products like basmati rice, fruit and vegetables, milk and milk products, tea, coffee, spices, meat and meat products and so on while at the same time catering to the vast Indian market. India is not yet a major player in these products in the international market even though it has the potential; its record of consistency in quality, adherence to supply schedules is very bad which puts off the foreign importer.

Some time back, a study carried out by the Food Processing Ministry indicated that India is the largest or the second largest producer in the world of tea, milk, fruit and vegetables, eggs, rice, wheat, bananas and mangoes; it has largest population of cattle. However, not much has been done to develop international markets for these products. It is true that most of these items are being exported to West Asia but there is very large international market for these products outside West Asia.

Though incentives have been provided in the past to encourage the growth of food processing industry yet it is still lagging behind by international standards. The excise duty on some of the inputs like processing machinery, packaging is very high. The food preservation technology in most of the cases is more than three 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 of our agro based products in foreign countries.

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

Similarly, the cooperative sector producer of milk and milk products has also started marketing its product 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 processed food products industry so that India can become a major player in the international market in the next three to four years. The budgetary sops can make a lot of difference.

As a first step India should concentrate on increasing the productivity of those agricultural products in which it has a comparative advantage. It could be basmati rice or tea or coffee or it could be mangoes or bananas. Some of the energies of our agriculture research centres should be concentrated on developing high yielding varieties of these products. This will ultimately be reflected in reduced production cost and reduced final price.

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 large number of oranges including Kino (hybrid of orange and malta) 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 in a big way we must perfect the technology to preserve the citrus fruit juice in India so that we can compete effectively the US producers not only in our own domestic market but also in the international market. Sixty five percent of the world mangoes are produced in India; India can tap the mango juice market of the world provided it perfects the technology.

The third step should be to improve the food processing technology itself and bring it up to international standards. The trend all over the world is to use such technology, which reduces wastage, and increase the shelf life of the product with little use of preservatives. For instance, milk treated with UTH process prolongs the shelf life of milk to at least six months without refrigeration. Incidentally, if we could reduce the final price of UTH processed milk, we would be relieving almost all the households in the country from the drudgery of boiling milk; UTH processed milk is better than boiled milk with a longer shelf life. Think, how much of lpg would be saved.

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 such 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 may have a comparative advantage in selling its agricultural products in the international markets but it will not be able to capture by itself the vast international market for various agriculture products without improving the quality of its products in every aspect. We have a lot to learn in this respect from countries like Thailand and Philippines. We should expand our base in the domestic market as well as become a significant player of processed food in the international market.---INFA