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. 

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)

ECONOMIC HIGHLIGHTS

New Delhi, 7 March 2008

BRING EXECUTION IN PUBLIC DOMAIN

By Dr. Vinod Mehta

(Former Director, Research, ICSSR)

As the euphoria over the Rs 60,000 crore waiver of farmers’ loan dies down various political parties and financial experts have expressed reservations and doubts. Allocating funds is perhaps the easiest task but deploying them efficiently is the most difficult one. If one goes by India’s track record of implementing various schemes there is nothing much to cheer about.

Last year also, the Finance Minister Chidambaram had made large allocations to agriculture, education, health etc, but still there is no information as to how this allocation was spent and what has been the progress. This year too, Chidambaram, apart from writing off the loans of marginal and small farmers has made large allocations for the agricultural, education and health sectors.

It is, however, common knowledge, that there are leakages and the schemes are rarely completed on time. In one of his oft quoted remarks the Late Prime Minister Rajiv Gandhi is stated to have said that of the one rupee allocated, less than 15 paisa reaches the people. This observation was also corroborated by a Deputy Chairman of the Planning Commission a few years ago.

This time, the Finance Minister has announced that a monitoring cell will be set up in the Planning Commission to monitor the progress of various schemes and the allocations.  This is a welcome proposal.

The programmes are implemented by the respective Ministries and not by the Finance Ministry. In the case of agriculture, education and health; the onus is now on these three Ministries. Again, agriculture, education and health are mainly State subjects with some in the concurrent list. Therefore, the successful implementation of the schemes announced in the budgetary proposals would depend upon the cooperation between the respective Central Ministries and the State Governments.  But again the record of the many of the State Governments and the Central Ministries leaves much to be desired.

The Finance Minister has now to ensure that the money which he has allocated for various schemes such as credit to farmers, irrigation, insurance for farm labourers, development of high yielding varieties of seeds, employment of more teachers, scholarships to check school dropouts, rural health mission etc. is properly used and results delivered.

Many a times it happens that programmes announced in the beginning of the fiscal year are taken up almost at the end of the fiscal year. The bureaucracy moves very slowly to implement the schemes. If the programmes announced in the budgetary proposals are to be sincerely implemented than the monitoring of the programmes should be brought in the public domain.  It is not enough that the programmed implementation is monitored in the Planning Commission but it should be in the public domain; the tax payer should know if the tax revenues are being properly used as indicated in the budgetary proposals.

Within a week of the budget being passed by the Parliament, all the specific programmes should be placed on the web site with the total amount allocated and then provide monthly updates on the progress made by each of these programmes.  For instance if the programme relates to installing water sprinklers under irrigation then the actual money allocated for this purpose, procurement and installment of equipment on a monthly basis must be shown on the web site. 

There should be web site for each single programme as proposed in the budget and the public given the right to monitor its implementation. Once the implementation of the programme is in the public domain the chances are that they will be implemented efficiently and the desired impact ensured.

It is difficult for any Finance Minister to address all the problems of the agricultural and the social sectors in one go but there are human problems and problems of quality in health and education which need to be attended to.

It is true that writing off of loans will provide much needed one time relief to the marginal and small farmers. But the problems of these set of farmers are much deeper and need to be tackled on a different basis. Like any other family, the farming family also needs a minimum of regular monthly income especially at a time when his crop has failed. In such a situation he not only needs money to plant new crop but also to look after his household expenditure. Farm loan can take care of his need to plant new crop but who will take care of his daily needs till the new crop is harvested? 

According to farm economists a farm household needs a minimum of Rs. 2,000 to 3,000 a month to meet its household expenditure. Therefore, can there be a mechanism whereby a farm household is ensured a minimum household income of Rs. 2,000 a month when his crop has failed?  For a farmer in distress a regular monthly income is more important than a farm loan.

Last year also the Finance Minister had allocated funds for agricultural research especially for the development of high yielding varieties of seeds for pulses. It is a well known fact that development of new high yielding varieties of seeds is a time consuming process. When will the money allocated now lead to the production of new improved seeds is any body’s guess. 

The shortages in the production of pulses has been there for almost two decades. One is then tempted to ask what research has been done by the numerous agricultural research institutes in the development of new improved pulse seeds.  If not much has been done in this direction in the past two decades then what is the guarantee that we will come out with new improved pulse seeds during the next fiscal year? 

The point is that we have to focus our research on certain important crops especially food grain, edible oil seeds and pulses to tackle the shortages of these essential commodities. Increasing allocation for research on them is not enough we also need to revamp our agricultural research institutions and the research culture therein. And this is clearly the task of Agricultural Ministry and not that of the Finance Ministry.

Similarly, we have increased the allocation for education and health but the quality parameters are not reflected anywhere. It is one thing to say that more colleges and universities will be opened but another thing to ensure quality education. As per the last budgetary proposals two lakh more teachers were to be appointed during this fiscal year but there is no information as to how many new teachers have been appointed and what has been the quality of those teachers. 

Therefore, to ensure that the allocations for various programmes are well spent it is essential to bring the implementation in the public domain. Otherwise the allocations will go down the drain as has been the case till date for a majority of our programmes. ---- INFA

(Copyright, India News & Feature Alliance)

ECONOMIC HIGHLIGHTS

New Delhi, 20 February 2008

Strengthen Agricultural Sector

WHERE IS THE SURPLUS FOODGRAIN?

By Dr. Vinod Mehta

(Former Director (Research) ICSSR)

While the Government is planning sops for the farmers in the coming Budget, reportedly wheat output might fall in the coming months as the farmers are said to have reduced the area under wheat crop.  This is likely to affect the availability of wheat as well as the Public Distribution System (PDS).  Besides, the international prices of wheat are very high and importing wheat in such a situation to boost wheat stocks could be a very expensive proposition for the country.

The Economic Survey and the budgetary proposals (2007-08) rightly drew the attention of the country to the lopsidedness in our economic growth.  The manufacturing and the service sectors are doing relatively very well while the agricultural sector is lagging.  Now we are getting ready for the budgetary proposals for the next fiscal but the agricultural sector continues to remain sluggish. 

The import of grain can at best be a temporary solution for a big country like India. The real solution, however, lies in increasing the productivity of food grains along with the other essential commodities.  Productivity of our agricultural products is ridiculously low by world standards.

If we compare the productivity of the Indian agriculture to that of the productivity in other countries, we will find that our agriculture is way behind them. Take for instance China, which can be our competitor in the international agricultural market. With only 100 million hectare of agricultural land, China is producing 400 million tonnes of grain while India with its 146 million hectares of agricultural land produces on an average only 108 million tonnes of food.

If we take the production per hectare of individual crops too we will find that the country is way behind other countries. The average production of rice per hectare in India is around 1,756 kgs compared to 5,475 kgs of North Korea; we are harvesting only 2117 kgs of wheat per hectare compared to 7,716 kgs by the Netherlands. Similarly, India produces only 1606 kgs of corn per hectare compared to 9091 kgs of corn per hectare by Greece.

It is the same story when it comes to soyabean and groundnut. The production of soyabean per hectare in India is 804 kgs compared to 3,453 kgs in Zimbabwe. As for groundnut, the country harvests only 929 kgs per hectare compared to 4,600 kgs per hectare harvested by Israel. In other words, Israel is getting five times the groundnut per hectare as against India. Similarly, India produces 15,817 kgs of potatoes per hectare compared to 45,349 kgs produced by Belgium. As for sugarcane we produce 65,382 kgs per hectare as against 135,448 kgs per hectare produced by Peru.

If we take these comparisons seriously, which we as a nation should, then India has a lot to explain and lot to do. The feel good factor will not deliver results here. It may be all right to have a record harvest occasionally and overflowing granaries in a relative sense. But we are just able to meet the domestic demand for foodstuff and may have surplus to see us through one or two bad harvests.

For a country, which also looks forward to entering the international agricultural market in the near future this is not enough. It is necessary to have a substantial surplus of agricultural products every year on a fairly continuous basis if we are to emerge as one of the important exporters of agricultural products in the world like Australia, USA or the European Economic Union countries and also meet our own domestic demand.

The figures also show that the potential of increasing the agricultural productivity is immense. If other countries can get three to five times the production per hectare of any agricultural product why can't India at least double its output per hectare of the agricultural produce?  The potential for such an increase exists and there is no reason why the country cannot achieve this. 

Additionally, in spite of the fact that we are spending so much on agricultural research, the country has not yet been able to produce seeds of high yielding varieties of international standards --- seeds which can change the face of Indian agriculture. There has to be some match between the funds we spend on agricultural research and the actual results we get in the form of produce per hectare.

The figures also reveal that India is not using its agricultural inputs to the optimum level.  A country like China which has less cultivable land than India has developed one of the best water management systems to get the maximum advantage. Similarly, Israel has turned the desert into an arid land, again mainly through its water management system.  A country like Netherlands which can grow only one crop a year because of the cold weather and snow makes the best use of its inputs to get the maximum output per hectare.

The lessons which the experience of other countries in the agricultural sector holds for us are that we have still a long way to go to tap the full potential of our agricultural sector. Moreover, by following an appropriate strategy we can increase the produce of our agricultural products several-fold.

There is no getting away from research in the agricultural sector. All efforts need to be put in to develop the high yielding varieties of various kinds of agricultural products which go well with the kind of weather conditions we have in the country. Also, this research would have to be extended to other allied activities like animal husbandry, fishing and plantation. 

However, the kind of bureaucratic environment that exists in our agricultural research institutes is not conducive to research that is needed for the development of the high yielding varieties of crops or milch animals. The number of suicides in the ICAR in the past goes to show how callous we are towards the agricultural research scientists. 

Therefore, as a first step we must revamp the setup of our agricultural research institutes and agricultural universities and fix some goals for the development of high yielding strains of food crops, edible oil seeds, sugarcane etc. Increasing allocation for agriculture research is not enough. We have to deliver results.

But pending the development of our own high yielding strains, we should make the best use of the available high yielding seeds of various crops that are available in the international market. If the seeds being sold by the multi-national companies can substantially raise the agricultural productivity per hectare, why should not the country go in for the use of such seeds immediately, even if they are expensive?  The use of such seeds would also increase the earnings of the farmers. 

What the agricultural research institutes can do is help identify the seeds being sold by multi-national companies which would be more suitable to the Indian climatic and soil conditions and would yield the maximum produce per hectare.

In fact, Professor M.S. Swaminathan, the architect of India’s Green Revolution, has been expressing his concern for a long time over the trends in the agricultural sector. He is disturbed by the fact that there are no real policies in the agricultural sector except for subsidies.  His observations need to be taken seriously.

This fiscal the growth rate is estimated to be between 7 and 8 per cent, but the Prime Minister speaking at the 80th AGM Meeting of the FICCI recently stated that he was confident that the country would realize a growth rate of 9 per cent during the Eleventh Plan period. The manufacturing and the service sector are doing relatively well and therefore to realize such a high overall growth rate we will have to push up the growth of the agricultural sector by focusing on increasing the productivity not only of food crops but also of commercial crops. ---- INFA

(Copyright, India News & Feature Alliance)

ECONOMIC HIGHLIGHTS

New Delhi, 14 February 2008

Research Holds Key

CHINA TO OVERTAKE AMERICA

By Dr. Vinod Mehta

(Former Director, Research, ICSSR)

China is being billed to replace the US as a powerhouse of scientific research and development of new technologies in the coming years. As acknowledged by even the Americans.  A new study of worldwide technological competitiveness in the US suggests that “China may soon rival the US as the principal driver of the world's economy - a position the U.S. has held since the end of World War II. If that happens, it will mark the first time in nearly a century that two nations have competed for leadership as equals.”

Thus China will overtake the US in the critical ability to develop basic science and technology, turn these developments into products and services and then market them to the world. “Though China is often seen as just a low-cost producer of manufactured goods, the new ‘High Tech Indicators’ study done by researchers at the Georgia Institute of Technology clearly shows that the Asian powerhouse has much bigger aspirations.”

The US researchers have also noted that in 2007 China had a technological standing of 82.8, compared to 76.1 for the US, 66.8 for Germany and 66.0 for Japan. Just 11 years ago, China's score was only 22.5. The US peaked in 1999 with a score of 95.4.

Again, Israel, a nation of just 6 million people, is also fast becoming a world leader in high technology. With 135 engineers per 100,000 people, it has the highest number of engineers per capita in the world, a proportion double that of the US. Numerous American and Silicon Valley firms have set up research and development facilities in Israel like Microsoft, Intel, Hewlett-Packard, Sun Microsystems and IBM. And the country, home to some 2,000 technology start-up companies - has the world's greatest concentration of such firms outside of Silicon Valley.

Where does India stand in terms of scientific research and development of technologies?  We are a nation of one billion plus and one of the fastest growing economies. Can we sustain this growth rate without scientific research and development of new technologies?  Some of our business houses are taking over businesses in other countries including developed countries but what do we have to contribute to technological innovation of these businesses?

Frankly, speaking except for a few areas like space we are duds as far as scientific research and development of new technologies are concerned.  We have spent large funds over the years on developing a main battle tank and a light combat aircraft and yet we are still nowhere. 

Given the situation in our neighbourhood, our defence preparedness requires that we are battle ready with the latest technologies. Sadly, since we are unable to develop critical technologies the country is spending huge sums on importing defence equipments.  If we were to make these equipments with our own technologies we would not only be generating jobs in the manufacturing sector but also saving a lot of money.

India has one of the largest railways networks in the world but the country is dependent upon nations like France and South Korea for reliable signaling system, on Germany for designing of ultra modern passenger coaches. This is true of many other areas like machinery for the manufacturing and the construction sectors.  Yes, India is way ahead in the development of IT software but we cannot design and manufacture a pen drive or flash cards for use in the computers, digital cameras and mobile phones. Scandalously, all these are being imported from China!

Sometimes while purchasing equipments from foreign companies the powers-that-be insist on the transfer of technology. But in most cases, the so-called transfer of technology is a mere eyewash. No country or foreign company which has spent millions or perhaps billions of dollars on scientific research and perfecting technologies is going to transfer it to India. And why should they?

If India wishes to be counted among nations like the US, Russia, UK, France, Germany, Japan, South Korea and China it has no option but to rely on its own basic and applied scientific researches. It needs continuous development and perfecting of new technologies in every field be it defence, space, industry or agriculture. To achieve this we have to attract talent and reward them handsomely.  At times even hire foreign talent for critical technology.

Remember, what set the US apart from other countries as an economic power after World War 1 was its scientific research and the technologies it developed and used in various fields like space, defence, medicine, industry, agriculture et al. The strong point of European countries particularly UK, France and Germany along with Japan too was the same.

However, the Soviet Union directed all its energies to develop defence and space technologies, given the Cold War Era. And, Long after World War II, South Korea concentrated on scientific research and development of new technologies and today stands close to Japan in terms of research and technology in the industrial sector. Israel, like the Soviets, has concentrated on defence technologies. Except for the US and erstwhile Soviet Union most of the other countries are smaller or much smaller in size than India.

However, unlike India, where researchers are paid peanuts, other countries reward their researchers handsomely. In the Soviet Union scientists engaged in defence and space research are paid salaries and perks which are much higher than the salaries and perks of the Politburo members. In the US those engaged in scientific research are not only highly paid but it faces no problem in hiring the best foreign researchers.  However, post 9/11 hiring of foreign scientists has become strict leading to the US losing ground to other countries in the development of new technologies.

On the heels of the US, China too is following suit. It is single-mindedly concentrating on training scientists and engineers who conduct researches needed to maintain the country’s technological competitiveness. And if China persists as it will, India by comparison will become a weak economy.

Clearly, if the country has to maintain its growth rate at around 10 per cent to be counted as a developed nation and stand up to others, we must strengthen our research base, develop our own technologies and stop looking up to other nations for joint researches or transfer of technology.  Attract talent and reward them handsomely.  There is no short cut to this. ---- INFA

(Copyright, India News & Feature Alliance)