The Hindu Business Line : Food processing sector: Will it make transition from `outlay to outcome'?

Liability and public action clauses need to be incorporated along with the outcome expectations introduced in the Budget. The size of the population is the key and food safety and standards must not marginalise them.

THE Budget 2005-06 has sent positive signals for the agrarian segment of the economy. Efforts to enhance public and private investment in agriculture and allied sectors are indeed commendable. But these attempts at market integration must not lose sight of the production landscape. Also, the Budget is silent on the health aspects of processed food. The associated national and subordinate regulatory framework will determine the final outcome. Is the food business ready to engage with the "outlay-outcome pairing" promised in the Budget?

The food business in India is not a homogenous entity. Therefore, a segmented approach is called for to gain an edge. Fundamental to this is the primary production landscape.

The dietary patterns make up the other side of the coin on many health counts. For instance, a WHO study predicts that India will soon have the largest number of diabetic in the world.

Hence, questions arise as to who will set the standards for a dal makhani or an idli sambhar?

The search for plausible answers must assess three business fundamentals — effective decentralisation, opportunity segmentation and meaningful partnership among stakeholders. These are applicable equally to public and private players. In this context, what is the rationale and utility of any integrated food law?

The Food Safety and Standards Bill 2005 (FSSB) is an integrated food law. The idea and the scripting of the law is, indeed, towards attracting foreign direct investment to the food-processing sector. The idea was mooted for the first time in 1998 through the PMO's advisory council.

In the age of globalisation, standards and food safety should be given prime consideration. This will help protect human and plant health and also animal health and life. The agreement on application of sanitary and phytosanitary (SPS) measures of the WTO came into force in 1995 in response to these concerns. Facilitating smoother trade — domestic and international — in food products was thus addressed squarely. But what does the integrated food law bill aim to do?

The FSSB is a food processing sector inspired move. It aims to repeal nine disparate Acts and Orders. The major concern arises, as some of these laws may not be the immediate concern of the Ministry of Food Processing. The major food law is the Prevention of Food Adulteration Act 1954. It has been amended nine times. The associated Rules too have progressively moved up to meet newer challenges.

A substantive body of case law literature and experience has also been developed that cannot be easily repealed from the juridical domain. For example, the PFA Act 1954 (Rules) has an exhaustive Annexure B detailing pertinent standards for almost all food items. These food items, commonly consumed in India, needed to be updated to be WTO compliant.

Unfortunately, comparable subordinate laws may not materialise for a while and the consumers, in the interregnum, will pay a hefty price. At the same time, this will greatly jeopardise the health of the future generations as well. A confused set-up is a greater probability with the integration move.

On the economics side, heroic assumptions become essential to redeem the new move. The assumption on competitiveness in the food business is a case in point. The processing industries are acutely aware of the linkage mechanism between the producers of primary material/commodities and the consumers. The demographics notwithstanding, the retail chain-driven modern system is highly skewed towards the promoters' bottomline. The food processing business in India is estimated to be worth Rs 3,15,000 crore. The value-added — through transportation, storage, packaging and processing — alone accounts for Rs 99,000 crore.

The stronger consumer purse and the needs of their health demand stronger consumers protection laws to gain their confidence in the food standards. Who will first determine the standard; who will certify and carry out surveillance and monitoring? These questions need to be sorted out to gain the confidence of the consumers and the producers alike through the policy instrument and central agency.

In India, the food processing industries are concentrated in the small-scale sector. This sector is sure to attract retail chain-driven modern agribusiness. The temptations are irresistible.

Cost-inefficiencies of the processing industries and the retail chain will be passed on to the consumers and the primary raw material producers. Since these conglomerates do not worry about the internal economies of scale, mark-up and margins drive their business plans.

Notably, world over, the agribusiness strategy has been oscillating between the supply-push and demand-pull. That effectively means that the producers of primary raw materials, on the one side, and the final consumers, on the other, get fully exploited under the new business plans of the food processing industry. That will bring to naught all talk of productivity gains to the hapless producers.

The French system of food standards regulatory reform is recommended for understanding the role of an independent apex body. The AFSSA is an apex agency. It is independently responsible to carry out exhaustive risk assessment based on scientific and technological innovations. The apex body is answerable to the Health, Agriculture and Consumer Affairs Ministries. Different institutions perform the enforcement and inspection roles.

Parliament must create an independent body that will truly consist of scientific and technology-savvy visionaries. The main strategy should be to prevent the capture of policy space by private players and interests. The Ministry of Food Processing Industries is still in its infancy to take the driver's seat, as health concerns of the population are serious matters.

The emerging food business is becoming increasingly science-based. That is driven by the chemistry of the food products processing sector. A high-class research and technical competence, therefore, has become essential. Who in India fulfils such characteristics? The public-funded research institutions and universities.

The integrated food law is far removed from the backdrop in India in terms of landscape of processing sector, primary production and dietary pattern and the emerging scenario in the global context. An independent authority or agency, therefore, is a must and this requires further discussion and debate.

(The author, an economist, is an independent Trade Related Capacity Building Specialist. These are his personal views that form subject matter of a book on Sequencing Food Safety Regulation Reform in Developing Countries. He can be reached at jgfedp@vsnl.net)

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