How trade deals can take our beverages to global markets

News: Recently a study titled ‘Contribution of Non-alcoholic Beverage Sector to Indian Economic Growth & Atmanirbhar Bharat’ was released.

Findings of the study

The beverage processing in the country is low.

India’s 19th rank in terms of revenue in 2019 was below China and other developing countries like Mexico, Brazil, Indonesia, and Nigeria.

India’s Potential/Strength

India has a lot of strength in raw material availability, and is one of the largest global producers of horticulture products.

It leads the global production of bananas, mangoes, lemons, lime, papaya and also other ingredients needed for non-alcoholic beverage processing like milk and sugar.

India has a large and growing domestic market as well as export opportunities.

These can be key drivers for scaling up beverage processing as well as investment in research and development and product innovation.

What are the challenges?

Overall per capita sales revenue continues to be low, due to high prices. India hardly exports any beverages.

In 2020, India ranked 59th among global exporters of fruit and vegetable juices (HS code 2009), while Brazil ranked first. Further, foreign investment in the sector is only around 1% of the overall investment.

Less than 10% of the fruits grown in this country are used for beverage processing.

Around 25-30% of India’s fruits and vegetables are wasted along supply-chain paths. This figure is less than 10% in countries with strong beverage processing industries.

High GST rates: India’s GST rates are higher than countries with which it has trade agreements (or FTA plans). It impacts the competitiveness of its firms in export markets. For example, zero-sugar carbonated drinks and carbonated fruit-based drinks attract 40% tax (20% GST + 12% compensation cess) in India, whereas Australia has imposed a standard 10% tax on all goods.

In the past, India kept most of its food processing industry, including beverage processing, outside its trade pacts.

Importance of the sector

Beverage processing can help increase farmer incomes.

– For example, Apple supply chain participant farmers, after training by beverage companies, got a 20% higher yield per hectare, 5% higher prices, and 59% more income per harvest season vis-à-vis their counterparts in the same district.

Way Forward

The government incentives like the production linked incentive scheme can unleash our strength in beverage processing.

India can use trade agreements to seek greater market access for its exports.

– This should be a key area for discussion in trade agreements with the UK, Canada and the EU. For example, Countries like Brazil, China, Japan, the US, UK, Thailand and Mexico use their trade agreements to promote processed food exports (including non-alcoholic beverages).

Given its strength in raw materials, India needs to enhance its domestic manufacturing capabilities at a fast pace. Further, India should adopt a well-planned export strategy to promote Brand India in export markets.

There should be rationalization of GST on carbonated sugar-sweetened beverages, zero-sugar drinks and nutritious/essential drinks like fruit juices and packaged water among others.

The rationalization will increase domestic market sales, enhance tax revenue collections from the sector, and enable our companies to scale up and export.

– For example, Denmark’s residents used to travel to neighbouring countries to purchase untaxed sugary foods and beverages. However, when Denmark scrapped the sugar tax, the government earned more, reduced sales of illegal soft drinks, increased investment in manufacturing, and stopped people crossing the border to buy cheaper soda.

Source: The post is based on an article “How trade deals can take our beverages to global markets” published in the Live Mint on 01^st June 2022.