From food safety concerns to supply chain management issues, food manufacturers face numerous challenges that can impact their ability to produce and distribute products. Rajat K Baisya discusses these challenges to bring in proper perspectives and implications.
Overview of the Food Processing Industry
The Food processing industry significantly contributes to employment generation, reducing wastages of primary agricultural and horticultural produce and the country’s GDP. But it has many challenges to overcome. The industry faces a range of challenges, including food safety concerns, environmental sustainability issues, changing regulations and policies, a shortage of skilled workers, and intense competition, including competitive products from abroad and new entrants into the category and cost escalation and price pressures.
From food safety concerns to supply chain management issues, food manufacturers face numerous obstacles that can impact their ability to produce and distribute products effectively to deliver performance.
Impact on Employment and GDP
In India, the food processing sector generates about 1.4 million jobs in the organised sector, and taking unorganized food processors on a small scale into consideration, the total employment in this sector would be about 5.3 million. In terms of contribution to GDP, this sector’s contribution would be about 7 percent. As such, this is a very important sector contributing to employment and the country’s economy.
In a short article, addressing all of these challenges will not be possible. However, I plan to discuss these challenges to bring in proper perspectives and implications to understand the performance of the food processing sector in India. One of the most pressing concerns for food manufacturers is food safety. Food manufacturers must take steps to ensure that their products are safe for consumption and comply with regulatory requirements. This issue of PFI will deal with food safety and standards.
Regulatory Environment and Compliance
Food safety concerns leading to diseases and deaths are a big challenge even in developed countries, and we often read reports about such outbreaks. In India, the frequency and magnitude of such occurrences are much higher, which has its own impact on the performance of the industry sector, including economic impacts.
On average, about 100 million cases of food poisoning and about 120000 deaths are reported in India every year. This is quite alarming. We also have frequent reports of deaths from the consumption of spurious liquors happening. Large numbers of people die due to consumption of spurious liquor mixed with methanol.
The spurious liquor also arises from uncontrolled fermentation processes being followed by the locals wanting to make quick money escaping the food safety regulations and standards. FSSAI has no control over them.
We also have issues related to foods served in religious places and temples on a large scale, which normally escapes the scrutiny of the food safety and standards authority. In large gatherings during special religious congregations such as Kumbh Mela, food safety issues and concerns are even much higher, and it is mostly left to vendors selling fresh, processed, on-site processed food products where no one knows about the quality of food ingredients used, and if those are permitted.
Technological Innovations in Food Safety
While FSSAI is performing its role to enforce regulatory standards and practice but, food manufacturers must take steps to ensure that their products are safe for consumption and comply with the regulatory requirements. Otherwise, in a vast country like ours, it will be impossible to enforce standards. The problem arises particularly from those small and individual processors who are not even licensed. It is also impossible for FSSAI to bring everyone under their licensing regime, which is ineffective.
FSSAI has been in control as an integrated organization to control food safety but does not have enough people and infrastructure to handle this mammoth task. As a result, in spite of the fact that standard practices and the quality of processed food have significantly improved over the years, the incidences of failure, diseases, and even deaths arising from food poisoning have not improved. It is increasing, and that itself is a big challenge.
Many food safety issues can be traced from the primary inputs in food processing, such as food ingredients and water. In addition, the storage and other logistics issues also contribute to product failures. Most of the food-borne diseases reported in India are bacterial caused by Staphylococcus aureus, Bacillus cereus, Escherichia coli, Salmonella, and Vibrio parahaemolyticus. These are all pathogenic bacteria.
Rejection of consignments of food exports from India to the US and the EU, especially that of basmati rice, marine food products, spices, and fruits and vegetables, on the grounds of contamination continued to be high. However, there was a decline compared to the previous year.
EU countries issued border rejection notifications for 147 consignments of food items from India in 2019, a tad less than the previous year’s rejection of 168, while the US rejected a total of 1,674 consignments compared to 1,939 rejections the year before, according to data from European Commission’s Rapid Alert System.
Cost of Quality Failure
The quality guru Philips Crosby, well known for the quality management institutes operating in his name in many countries, including India, wrote a book titled “Quality is Free”. The definition of quality is conformance to the agreed standard of performance and not something superior and better as we normally perceive. If the product delivers agreed and or contracted standards, then quality is said to have been delivered. This book attempted to work out the cost of non-performance or the cost that manufacturers will be required to incur if the product fails to deliver the agreed quality as per standards or agreement, which will always be much higher than the cost of delivering the quality itself and in that sense the quality can be considered as free.
Although the general perception is that large organized processors always try to maintain the quality standards. The reality, however, is that even large multinationals are also seen to be failing, and we have discussed such issues earlier in this column. And they have paid a huge price for such quality failure, including collateral damages. As such, it makes good sense for all processors to adhere to the prescribed standards and quality at all stages of procurement, processing, storage, and distribution till the product has reached the final consumers and it is consumed.
In the case of food products, the cost of quality failure could be traced, covering all costs, including the cost of re-work, reprocessing, loss of business, reputation, and image resulting in future loss of business. In addition, there will be penalties, cancellation of licenses, and, in some cases, even jail and legal complications. These costs will be many times more than the cost of delivering the quality by adhering to the prescribed standards of processes and practices. These are the immediate implications on the processors and or manufacturers, traders, distributors, wholesalers, retailers, and exporters, as the case may be.
Now, let us look at the other kinds of losses, which have even much bigger implications. Those who lost their lives from the consumption of spurious and contaminated food products and also from food poisoning, which no financial figures can match or make good for losses of valuable human lives. Besides, costs incurred in hospitalization and resulting associated costs to the nation. In international trade, there are other costs of return and penalty plus loss of the country’s image and reputation, which have much wider implications and ramifications.
Critical Challenges Faced
Cumulative of all these costs for not delivering quality and non-compliance will work out to be much higher than the cost incurred for compliance. Besides, it will be a disservice to the customers, consumers, society, and the country at large. These issues are normally overlooked by the processors and, most importantly, by those who fail to deliver the quality. Customers normally identify those problems of quality failure, sometimes even at the cost of their valuable lives.
The processed food industry’s contribution to the economy has to be understood from the economics of food safety related issues resulting in other collateral damages.
*The author is the chairman of Strategic Consulting Group and served as Professor and Head of the Department of Management Studies, IIT Delhi, India.
