Editor's Note: This article was first published in Mint on May 3, 2018.
India is the second-largest country in terms of arable land, with roughly 160 million hectares. It also ranks second in the world for production of fruits and vegetables. The country has 15 agro-climatic zones, which can support most fruits.
Despite that, the level of fruit processing in India is very low (around 2.2%) as compared to countries like the U.S. (65%), China (23%) and the Philippines (78%).
The biggest challenge faced by India's fruit processing industry is, perhaps, limited and inconsistent availability of fruits. Due to low per-capita availability of fruits in India, most fruits find their way to retail markets. Almost nothing is left for processing. In the absence of a consistent fruit supply, the industry cannot ensure supply to its customers. They are reduced to marginal players processing table varieties and filling the gap left by crop failures in other parts of the world. This leads to uncertainty and low-capacity utilization of processing units. As a matter of fact, most processing units run for less than 150 days a year.
This, coupled with low farm productivity, makes fruit processing a non-starter or a high-cost producer at best.
Let’s compare the global value chain to ours.
Presently, both fruit and fruit juice concentrate prices in India are way higher than the global prices. For example, the average ex-factory gate prices for oranges for the last three years have been 60% higher than Brazil. Brazilians segregate their fruit at source and have better irrigation and big financial houses in fruit processing. Furthermore, Brazilian oranges are juicier and sweeter than Indian oranges. Therefore, they use 40% less oranges to make 1 kg of juice concentrate, bringing our cost of production to more than double compared to that of Brazil. The case is no different for lemons or apples.
Within these challenges however, lies a significant opportunity for us. Globally, the three big crops that are processed are tomatoes, oranges and apples. We as a country are among the top 5 producers of all these commodities but have a negligible presence in their processing. A meagre target of 5% would lead to processing of 4 million tons of fruits.
What we need to do is to work towards significantly improving, both overall fruit availability and farm productivity.
Varietal Improvement: Facilitating cultivation of multiple superior varieties with higher juice and brix content and distributed production will be crucial. A distributed production of early, medium and late yielding varieties prevents glut and stabilizes prices, hence decreasing market risk for farmers. For processors, this increases the duration of plant operations and reduces carrying costs.
Productivity Enhancement: Today, we can achieve better land utilization through Ultra High Density Plantation (UHDP). In this, fruit trees are planted much closer as compared to traditional farming. For example, in mango UHDP, 600 trees are planted as compared to 40 trees in traditional farming.
Cluster Development: Globally, every country focuses on one or two fruits. For example, Brazil on orange juice, Europe/China on apple juice, Argentina leads in lemon juice, and India in mango. We need to select fruit to scale, and then make small clusters of excellence to pool in all resources in these clusters (examples, mosambi in Ananthpur, orange in Nagpur/Punjab and mango in Chittoor). Within these clusters, we need to promote Farmer Producer Organizations, have model food processing units, provide logistics support and market linkages for backward and forward integration.
Farm Extension and Sustainability: Advancements in agricultural research must reach farmers quickly. From sustainability perspective, farmers need to be appraised on Good Agriculture Practices (GAP) in terms of water, nutrition, and climate to grow new varieties. They should be warned against adverse effects of using pesticides beyond the prescribed dosage. This not only affects yield and quality but also makes it difficult for the industry to export pulp/concentrate amidst growing health and environmental concerns.
Procurement Efficiency: The ability to segregate the raw material at source and create separate distribution systems ensures that the processing variety goes to the processors, while the table variety goes to the fresh distributors. This maximizes the price realization as per fruit grades for the farmer.
Industry Level Intervention
Processor level interventions in apple and citrus may include introduction of tax incentives and financial subsidies for capacity expansion and improving the financial viability of existing units. The government may look at subsidizing the setting up of integrated units for by-product processing. For example, orange oil from orange peels.
Creating a circular economy for fruits will significantly increase fruit processing in the country which could be used not just in beverages but other food items as well. After all, every small initiative adds up to make a difference to the Indian Farmers.
T. Krishnakumar is president, Coca-Cola India & South West Asia.