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India’s Goldmine:PUSH PROCCESSED FOOD INDUSTRY, by Dr Vinod Mehta,1 September 2005 Print E-mail

Economic Highlights

New Delhi, 1 September 2005

India’s Goldmine


By Dr Vinod Mehta

The Indian agricultural sector has been performing relatively better for the past ten years, notwithstanding the bad monsoon years when the sector recorded a negative or very low rate of growth. In other words, the sector can be said to have achieved relative stability and can contribute more to the economy. The path can be said to have been laid for the growth of agro-based industries.

 In fact, India can claim to be sitting almost on a goldmine of processed food, which can become a top foreign exchange earner provided we follow appropriate policies and capture foreign market. The effort is totally indigenous, does not involve any import of any inputs and with a little investment one can earn a large amount of hard currency. The world processed food business runs into billions of dollars but India's share is not even one per cent.

India, as a signatory to the WTO, has to open up its economy to imports of agricultural products from all over the world within a few years time. When the WTO agreement was signed it was said that the country stands to gain by the opening of the farm sector as its products will be relatively cheaper than similar agricultural products produced elsewhere.  The reasoning was that other countries, especially the developed ones, will be forced to eliminate or lower down their subsidies on products while the subsidies on these  products in India are already much lower than allowed by the WTO. 

This is true to a very large extent. The WTO has opened 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 sustained attack on the international markets and produce goods which are in demand in those countries. This implies increasing the productivities of various agricultural products, improving quality, tastes, etc., application of highly-efficient processing technologies and improving the packaging.

 It has been almost nine years since India signed the WTO Agreement and still there are no indications that the country is doing anything in this direction. Lack of any agricultural policy is the weakest link in our economic reforms. Even though one has been hearing for the past decade that a new policy is on the anvil no such policy has been announced so far.  

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

It must be understood that India will have to open up its economy to imports of agricultural products from these countries sooner or later for the country cannot afford to ban their entry for a long as India is itself 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.  But 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.

This is a minus point with our exporters which comes in our way of tapping export market.  Thailand and the 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 non-professionalism of our business community. How can we enter the international markets with this kind of attitude?

 We should seize the current opportunity of record harvest and initiate steps for the all- round development of food processing industry. 

 A study carried out by the Food Processing Ministry a few years ago indicated that India is the largest or the second largest producer in the world of tea, milk, cattle, fruit and vegetables, eggs, rice and wheat. 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 packaging is very high.  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 the Indian tea was being auctioned in bulk to foreign buyers rather than selling them in a packaged form.  The Tatas have now started selling the 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 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. 

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 Bansmati rice or tea or coffee or it could be mangoes or bananas.  Some of the energies of our agricultural research centres should be concentrated on developing high yielding varieties of these products.  In fact, Indian 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.

Second step should be the development of new preservative technologies of international standard and can prolong the shelf life of those products without any much refrigeration.  For instance, we are producing large number of oranges including Kino, yet 30 per cent 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, the US enters the Indian market 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. 

Third step needs to be 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 on 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. 

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 by itself the vast international market for various 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 countries like Thailand, the Philippines and Malaysia which have well-established food processing industries. 

Successive Governments at the Centre have recognized the importance of processed food industry, but are not moving fast enough to take advantage of our comparative advantage in the agricultural sector. –INFA

 (Copyright, India News & Feature Alliance)








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