Facilitating investment in organic food business in India through right policies

The Indian government has taken several policy initiatives to promote organic farming and organic food exports. Since organic trade is dependent on the recognition of standards and processes by the importing countries, Agricultural and Processed Food Products Export Development Authority (APEDA), under the Department of Commerce, took the initiative to develop an organic regulation for exports, known as the National Programme for Organic Production (NPOP), largely based on the European Union (EU) organic policy/regulation, but customising it to meet the Indian requirements.

The Ministry of Agriculture and Farmers’ Welfare came up with a Participatory Guarantee Scheme for India (PGS-India) which aims at encouraging the small and mid-sized farmers to take up organic farming and promote it in the domestic market on a large scale. In January 2016, the Prime Minister of India declared the state of Sikkim as India’s first fully organic state. In March 2017, the Cabinet Committee on Economic Affairs gave its approval for removal of quantitative ceilings on exports of organic products (except pulses and lentils) thereby allowing unrestricted exports of organic agricultural and organic processed products irrespective of any existing or future restriction/prohibition on the export of the conventional (non-organic) products. A number of state governments have taken initiatives to develop organic farming and have come up with organic policies and state government subsidies. States such as Karnataka, Sikkim and Gujarat have set up state certification bodies to reduce the cost of organic certification.

Many Indian and foreign companies have responded positively to the government initiatives and several start-ups have been formed in organic food segment in the last ten years. A number of conventional food manufacturers, retailers and exporters have diversified their businesses to include organic food products. This is the fastest growing segment of food processing.

Given this background, a survey of 75 companies was conducted by the authors to understand their views on the growth potential of this sector and what should be the right policy to support the growth. The survey found that companies, on an average, estimate a 14% growth of the organic food market in 2017 but the growth rate can be 20% on an average in the next five years, if supported by the right policy.

Specifically, the companies want the government to implement the NPOP standards in the domestic market which will help to have guidelines for product labeling and standardisation based on international best practices, ensure a premium price for the produce and eradicate fraudulent and malpractices. The implementation of NPOP standards by the Food Safety Authority of India will enable India to sign bilateral equivalence arrangements/ mutual recognition of standards and procedure agreements with major trading partners such as the EU, Canada and the US.

Such agreements reduce the cost of exports as the importing country recognises laboratory test results, organic labels, logos and standards of the exporting countries. In the absence of a sound policy, the survey found that some traders are mixing conventional and organic food products and then they sell the products in the domestic market as organic at a premium price. Not only is this harmful for consumers’ health, they are skeptical to buy organic unless there is some regulation ensuring the authenticity of the produce. The NPOP logo is used as a mark of identification and authenticity of the products and it is also recognised by India’s key trading partners. Hence, it can be adopted by the Food Safety Authority of India.

The survey also found that while India has implemented reforms such as the single goods and services tax, which will benefit businesses, too may reforms and changes have also led to an uncertain business environment. The companies pointed out that a vision document of the government on organic laying down the short-term and long-term objectives and policies for development of this sector will reduce operational uncertainties and help them to invest. Since organic is a holistic agriculture practice, the focus of the government should not only be on improving soil quality but also on cattle feed and eradication of cattle diseases. In India, the focus on sustainable agriculture practices is low. There are around 51 pesticides used by farmers, which are banned in countries such as the US and the EU. Some of these are even subsidised by the government and are so harmful that it can lead to diseases such as cancer*. India is not declared free from cattle foot-and-mouth disease by the Office International des Epizooties. Unless the government bans harmful chemicals, focus on improving cattle feed and cattle health and sustainable agriculture practices it is difficult to move towards organic food in a big way.

According to the survey participants, some of the subsidies given for chemical inputs can be diverted to provide small and mid-sized farmers with bio-fertilisers and inputs such as good quality organic seeds. Organic farming needs better on-farm technology to protect crops against pest infestation. In India, farmers do not have access to technology such as netting and this has led to loss of organic crops in states such as Sikkim (oranges) and Maharashtra (mangoes, eggplant, okra) due to fruit flies and other pest infestation. Government can give subsidies for crop protection technologies. Subsidies are needed for establishment of organic supply chains, especially organic pack houses and storage facilities, in hilly and remote areas. Although Sikkim, the northeastern part of India and tribal areas of states such as Madhya Pradesh and Orissa have huge acreage of land in which farmers practice organic farming, companies are unable to source from these areas due to the lack of supply chain.

If the above measures are implemented it will not only increase the growth rate of organic food products in the domestic market but also increase exports, create employment and help in doubling the farmers’ income by 2022. Quality of food produce will improve which has long term positive impact on consumer health. It will hence enable India to meet the sustainable development goals.

* For details see Blaurock-Busch, E., A. Friedle, M. Godfrey, and C.E. Schulte-Uebbing (2010). Metal exposure in the physically and mentally challenged children of Punjab, India. Mædica, 5(2), pp.102.

- By Souvik Dutta, Assistant Professor, Economics & Social Sciences area, Indian Institute of Management Bangalore & Arpita Mukherjee, Professor, Indian Council for Research on International Economic Relations

[This article has been published with permission from IIM Bangalore. www.iimb.ac.in Views expressed are personal.]