A Bitter Harvest

It is ironical that the country with the third largest production of food in the world is making headlines for starvation deaths. And this is precisely what fortifies the arguments of the food processing industry for help from the government.

India's food numbers are impressive. We produce 601 million tons of food. With 132 million tons of fruit and vegetables, we are the second largest producer in the world. We have the world's largest livestock population and with 82 million tons of milk production annually, we are also the largest milk producers in the world.

And if this seems big, there is still more to come. By the end of 10th Plan the fruit and vegetable production is likely to touch 185-215 million tons and the milk production to 100 million tons. Yet food isn't reaching hungry mouths. One reason is that production happens a lot at a point of time and all of it cannot be consumed. Food and milk are perishables and hence go waste if not consumed or preserved.

This mismatch is probably the biggest incentive to preserve perishable food items like milk and fruits through food processing. But of course it isn't happening. So this story.

Less than two per cent of fruits and vegetables are processed and 40% are eventually wasted at different levels of production, transportation, and handling. Value of this loss: Rs 25,000 crore per annum! Same is the story with milk -- only 15 per cent of the organised sector produce is processed and the rest sold in retail or retained by the farmer or the producer. The retail sale of raw milk is highly prone to high bacterial count (a sure health hazard), adulteration and a poor shelf life.

But all this doesn't seem to be reason enough for successive governments to give an impetus to the food processing industry. So while agricultural produce incurs no taxes, the moment you try to put it through processing, which ensures hygiene and preservation, there are heavy taxes. A value addition of seven per cent happens to produce in India as compared to 23% in China, 45% in Philippines and 188% in UK. 

Despite the industry's representations, little has happened. Reason: An investment of Rs 1,40,000 crore is needed in the food chain to increase the processing level from 2% to 10% in the next 10 years. The high investment would, however, depend upon the pace of rationalization of tax structure, harmonisation of various agricultural laws and government/public investment in infrastructure like all-weather rural roads, rural electrification, waste land development, irrigation and market reforms, e.g. Essential Commodities Act, APMC Act etc.

The enormity of the task may be keeping successive governments from taking big steps. "But this development will promote the vital link between the two pillars of our economy: industry and agriculture", says D.P. Tripathi, senior advisor, The Aseptic Food Processing & Packaging Industry Association of India, (AFPPA).

AFPPA believes that since the raw material is agricultural and horticultural produce and is available in plenty, if properly exploited, it will improve the rural economy, prevent migration from rural to urban areas and will be a powerful base for resurgence of rural development and growth. Statistics seem to be favourable too. Food processing sector has direct employment growth potential of 2.61% and indirect employment generation is 2.38 times that of the direct employment. An investment of Rs.1000 crore would give employment to 54,000 people in this sector. What's more, women contribute 69% of the labour force in livestock sector as against 35% in crop farming. 

"Consumption", assures Surendran Menon, Marketing Director, Tetra Pak, "has tremendous potential with factors like a growing middle class with changing lifestyles, disintegration of joint family system, a rise in number of working women, higher per capita income, disposable income, convenience, food safety and hygiene consciousness".

Look at the obvious benefits. Milk could be made a component of mid-day meal programmes in schools and be eligible for central government grants of the Departments of Elementary Education, of Women and Child Welfare, of Rural Development. This would be a win-win situation for everyone from the consumer, the government, the farmers and cooperative dairy producers. The industry says that with the right support, food processing could be a saviour. Food could be cheaper and available to everyone. Farmers sell their produce at poor prices because they fear that their unsold fruits and vegetables would rot. A thriving processing industry could ensure a better price for them. Consumers could be assured of hygiene and savings like not having to boil milk at all.

Prior to the budget, the AFPPA had proposed to the government to consider reduction in customs duty (basic, Special Excise Duty + Counter Veiling Duty) on aseptic processing and filling machines from 50.8% to 28%, so as to bring it nearer to the duty structure in the neighboring countries of Southeast Asia and South Asia where the customs duty ranges between 10% to 18%.  A reduction in basic customs duty on aseptic packaging material from 35% to 15%,  and removal of the 16% Excise duty on aseptic packaging material, was also proposed, as it increases the final cost of packaged liquid food and cannot be reclaimed as CENVAT.  "But, while relief has been provided to carbonated drinks sector, no relief in customs or excise duty was provided to the aseptic food processing and packaging industry" rues Tripathi. "So does that mean that the government wants people to drink colas instead of fruit juices because the latter prove to be more expensive?" asks an industry member.

The industry fears that quality branded milk and fruit juice products will face stiff competition with similar imported products from the neighboring Southeast Asian & South Asian countries because of the lack of a level playing field. Cost of aseptically packaged food is considerably higher. A litre of milk costs Rs 25 against Rs 15 for the packets we usually buy. What sense does that make to a country with a huge population which is poor?

The AFPPA says that government's support could bring down prices considerably. Henrik Hauggaard, President, Tetra Pak in his budget representation claims, "Pakistan has witnessed a double-digit increase in UHT (ultra heat treatment that is given to preserve milk by killing all bacteria) milk sales over last year which indicates that, in a country with 40% population below the poverty line, consumers are still willing to pay for value, nutrition and hygiene, and not willing to compromise on quality".

Sources in the Ministry for Food Processing Industry says that the industry needs to generate volumes to help it lower prices. They also agree that taxes and duties on packaging account for a high 40 per cent of the retail price. The Ministry is also doing a generic campaign allaying fears of packaged food for the last three years. Growth of food processing sector is reflected in the number of applications for putting up new units. "Earlier we struggled to spend the meager allocations we got, but today, despite three times the outlay from the 9th to the 10th plan, we don't have sufficient funds to help all the people seeking assistance" says a Ministry insider. But the Ministry's role seems to end after writing to various state governments to rationalize state levies.

Everyone seems to agree that processing more agricultural produce will help everybody. After all there is a problem of plenty and the remedy seems to be obvious, and the obvious question is: what's holding back decisions?