Addressing the ultra-processed food challenge in global trade

Dr. Arpita Mukherjee, Professor, ICRIER, and renowned trade economist, delves into the complex landscape of processed and ultra-processed foods in a candid interview with IBT. She sheds light on the escalating health challenges posed by these food categories and explores the dichotomy of malnutrition versus the abundance of ultra-processed options in India.

She also emphasizes the imperative for Indian government and industry collaboration to navigate this paradigm shift. Her insights extend to the opportunities for India to become a major player in global processed fruit and vegetable exports, tackling health concerns, and aligning with evolving international standards.


IBT: Can we have a clear definition from you on what exactly is meant by processed and ultra-processed foods because I think it’s a relatively less used terminology in trade and even in general discussions? So can we start with that, please?

Dr Arpita Mukherjee: Every food needs some amount of processing. If you want to increase the shelf life of an apple, you need to do certain kind of processing, such as sorting, grading, etc. Ultra-processed food is actually defined as an individual or composite food and beverage, which is high in fat, sugar and salt, beyond a certain prescribed limit. It has lesser of the beneficial nutrients like protein, vitamin, minerals. So you are looking at the ingredients of the product, which says that it is beyond a certain level of salt, sugar, and fat. For example, India has banned trans fats, as they are bad.

To give you a more detailed perspective, the same food can be healthy, unhealthy or ultra-processed. For example, 100% fruit juice, which has no added sugar, or has sugar content within the prescribed limits, is considered to be very healthy. For the same juice, if you are making it extra sweet, it becomes a high sugar beverage – ultra-processed. Often, ingredients like sugar, salt, preservatives, etc., are added to increase the shelf life of the product and that can make them ultra-processed foods.

IBT: ICRIER has developed a report with the WHO on the rise of ultra-processed foods in India. So on one end, we have a high rate of malnutrition but on the other, the rise in ultra-processed food is generating a dilemma of plenty? Can you give some examples in this?

Dr Arpita Mukherjee: We are now one of the fastest growing economies in the world. Our per capita income is rising and so is the ability to buy products. Processed food market is growing and consumers are experimenting with new types of processed foods. At the same time, if you see surveys that are done by NIN and National Council for Medical Research, they are showing that in India, non-communicable diseases like diabetes are rising. Obesity is also rising and so are other health problems like heart attacks.

These are directly being linked to our lifestyle and the food that we are eating and in what quantity. If a person is suffering from malnutrition or low sugar he/she may need sugar, whereas another person may have diabetics. At present India has the dual problem of both malnutrition and overnutrition.

Speaking of nutrition, access to nutritious food is important. If we refer to healthy food, it should not be overpriced. For example, price of organic rice is almost double that of conventional rice. Similarly, low-sugar beverages cannot be double priced. Our tax on safe drinking water is higher than tax on many food products and high tax can increase the price of products that are needed to remain healthy.

The moment the food is a nutritious food, it is becoming expensive and beyond the reach of many. Today, obesity, heart problems and diabetes are not ailments of rich people alone in India. . Therefore, we need to ensure that healthy food is made available and accessible at a nominal price.

IBT: Indeed, as you mentioned, it’s about the access to such food products, which is leading to these problems. How do you see the rise of processed food segment, the growth, and how this segment will be impacted with the rise in health conscious consumers? This is with reference to the kind of opportunities Indian exporters have in this segment, as health conscious consumers are rising.

Dr Arpita Mukherjee: Globally, we are witnessing some interesting trends since the onset of the pandemic. Let me give you an example. Around 122 countries globally have some form of layered sugar-linked tax on beverages. Countries are also imposing obesity tax on sugar sweetening beverages and other sugar-based food products. Some countries have junk food tax, which covers a wide range of HFSS food. So global players are reformulating their product and reducing the sugar content.

Even if you are selling mango pulp now to the European Union, they are assessing the sweetness content within the mango pulp. The European Union has directives on free sugar. Hence, our manufacturers and exporters have to adhere to these global requirements. The world is changing and going for a layered sugar-based tax.

In India, there is no such sugar-based GST and therefore no incentive to go for low-sugar products. To add to this, sugar is subsidized and it is cheap. Therefore, players are using sugar to increase the shelf life. But such ultra-processed products with high sugar content are getting rejected in the international market.

India is not even ranked among the top 50 exporters of juices globally despite being a top producer of fruits and vegetables. Earlier, India was unable to meet the exportable requirement of the type of fruits and vegetables that are needed for processing. For the past 5-10 years, the government has focused on that issue.

Now we are trying to have fruits and vegetables of processing quality, but we need to focus on other regulations that can impact our exports. The most important ingredient that is looked upon with a very stringent eye is sugar – the level of sugar in products. Some countries look at free sugar in the product, while others look at added sugar. So there are variations on that as well. But if you are following certain requirements laid down by the EU and others, you are covering quite a few countries in the world, and can meet the sugar threshold.

IBT: So what are the global best practices being followed by competitor countries or companies, which Indian F&B players need to be aware of, so that they can grow their share in the international market?

Dr Arpita Mukherjee: When you are looking at company-level best practices, a lot of Indian companies are only seeing from the perspective of the domestic market. If you look at Euromonitor data from 2011-21, high sugar carbonated beverages have a growth <5%. But for low sugar products like coconut water and 100% juice, you will see growth in double digits or even higher. Moreover, many startups are coming up in these healthy products. So Indian consumers are also getting conscious. During the COVID-19 pandemic, many of them shifted from carbonated beverages and move into say juice or milk.

But now Indian consumers are also very conscious about the sugar levels because post-COVID, diabetic cases have shot up. So there is a restriction on sugar-based food. Our study for the WHO on Designing Fiscal Measures for Sugar Sweetening Beverages (SSBs) to meet SDGs in India, shows that if consumers are looking at ingredients of beverages, new commodities like 100% juice may take away the market share.

“If you look at Euromonitor data from 2011-21, high sugar carbonated beverages have a growth <5%. But for low sugar products like coconut water and 100% juice, you will see growth in double digits or even higher.”

At the same time there is a lack of product classification. I am studying beverages in detail, because each of these products requires a product classification, from very healthy products to the least healthy high-sugar products. Generally, what happens is that the Food Safety Authority in different countries draws up the classification based on sugar content in beverages and then the tax authorities do the classification for a layered tax, based on sugar and other ingredients.

The Food Safety Authority and/or other government bodies and authorities responsible for enhancing consumer awareness then classify the product by colour codes such as red, green amber, where green is referred to nutritious products. So there is a consumer awareness classification and fiscal measure like taxes, based on that, healthier products are pushed into the market through policy and they get a higher market share. Sometimes incentives are also linked to healthy production, like fruits and vegetables, so that their costs of procuring and using these ingredients are reduced.

So basically it is a package of the measures, beginning with the product classification, and moving into taxes and subsidies. Sometimes, organizations like WHO propose a very high 40% tax on HFSS foods. They propose it on the assumption that when there is a high tax, it will increase the price and consumers will choose the products with a low price.

But high tax may not operate in a country like India because of a few reasons. Most importantly, sugar is highly subsidized. So even if a beverage using sugar face a high tax, a manufacturers cost of production doesn’t increase significantly due to the subsidy. Maybe his/her profits reduces but he/she will not shift the burden of the tax to the consumer. Manufacturers are also catering to a taste, for certain categories like salty snacks. And consumers may like products which have more salt vis-à-vis others.

But as the taste of Indian consumers are changing, and doctors and nutritionists are guiding people to have healthy foods, so companies have to accommodate to these needs. Taxes and subsidies push you towards innovation, reformulation to meet the changing demand. Many startups admit that their law firms are guiding them to invest in juices instead of fizzy drinks as the tax is High sugar juices are much lower than that of low sugar fizzy drink which is the highest at 40%.

Globally the fizzy drink market is very big and India, with its high fruit production and current low levels of processing has huge opportunity to have innovative products like fizzy drink with fruits. From northeast, let’s look at fizzy pineapple drink, for example. If we are putting a lot of fruits and making a fizzy pineapple drink with less sugar, that should be in a lower tax category. And if you look at the vision of our Prime Minister more than eight to ten years ago, he already said that if 2% fruit is added to every carbonated drink, will benefit the farmer. Imagine if carbonated drinks add 25% to 50% fruits, how much benefit goes to the farmers. Yet this segment has a GST of 40% and there is hardly any investment. So if the vision of the country is fruits and vegetable processing then taxes or subsidies have to be linked to that vision of healthy beverages production.

IBT: So what do you think should be the way forward for government and in collaboration with the industry to ensure that we do not lose this opportunity?

Arpita Mukherjee: There are many industry best practices that we are witnessing among Indian F&B players. For example, Dabur has already taken a voluntary pledge to reduce sugar in beverages. Global beverage manufacturers like Coca Cola or PepsiCo are taking measures to voluntarily reduce sugar.

They are adhering to these layered sugar-based standards, globally And this has helped countries to have more beverage processing. Otherwise, countries like Thailand would not have been one of the largest fruits and vegetables and juice producers and exporters. Companies are adhering to layered sugar based taxes elsewhere and that can be replicated in India.

Where is India different? In India, 80% of the juice and overall beverage industry is in the informal sector. So from a tax authority perspective, it is not able to tax this 80% informal sector. The focus should be to formalize this informal sector through fiscal measures and help SMEs and startups to grow. When you are talking about sustainable food system in the context of building global and domestic resilient supply chain, which is the focus of India, you have to help MSMEs to grow and formalize through appropriate means of taxes and subsidies.

So offered there is a subsidy for lower sugar beverages, for example, industry will be much more receptive to the idea of sugar-linked taxes. Then policy makers can with the industry on a targeted timeline so that they can change their products to healthier options. Having said that, high sugar product should be in the highest tax bracket because that’s a global norm. If you do not implement that, it will not help industry to innovate or encourage reformulation.

But at the same time, if somebody is coming out with 100% fruit juice, why should that manufacturer be taxed at 12%? That should be 5% like sugar based milk. Tax the lowest for the product that is healthy. Tax the lowest for the safe drinking water, because water is healthy. At present, there is a 40% GST on aerated water, 12% on water packed in 20L. In our study for the WHO we suggested that:

(a) Beverages that are not sweetened, for example, waters (including natural or artificial mineral waters and aerated waters, not containing added sugar or other sweetening matter not flavoured; ice and snow) 0 to 5 per cent tax

(b) Moderate sugar level can be taxed at 12% -18% depending on the sugar level. For example, 12% for 100% fruit juices and milk-based beverages

(c) Presently concentrates, irrespective of sugar content have a GST of 18% – this can be layered by sugar content and

(d) High sugar based products should be taxed at the highest tax bracket of 28%.

There is need for industry consultation because when GST will change, some companies will start protesting, but not all. We have to discuss with companies about fiscal measures and make them aware of the potential that they can explore in 122 countries, which are following some kind of layered sugar based beverages taxes and not Europe and America alone.

Focusing on tax layers is a good step, as it varies – some countries has seven-layer tax structure and some have three-layer tax structure. Some countries have excluded products, where there is no scientific logic. So industry lobbying does happen. But if industry understands its true potential of using Indian raw material to be a bigger and better player in the global value chain, and potentially reach among the top 25 juice exporters from the present position, I think that will be amazing.

In the country like India, a tax authority has a lot of problems. They have to balance their tax collection with the concept that industry needs to be encouraged to innovate and formulate. The third point is health, which is very important. Can you imagine if you have the largest population in the world, what is your health cost burden? So fiscal authorities have to think about that.

IBT: We’ve talked about CBAM. And we’ve talked about a lot of new issues coming up in trade agreements. So do you see the scope of these issues coming up in FTA negotiations, maybe not with India, but with other FTA negotiations happening in different parts of the world?

Arpita Mukherjee: Yes, we are talking about resilient food systems, sustainable food systems in our trade agreements. Most of the chapters on sustainable food systems are actually looking at fresh produce, animal health, medicines, MRLs, etc. But if you look at the EU model for sustainable food system, the last mile is actually nutrition and consumers.

I’m just giving you one example because sustainable food system with a focus on health and nutrition is now a key component of trade discussion and trade in itself. And that is the reason why we are top exporters of fresh and intermediate agri-products, but not among the top 20 exporters of processed food products. And if we process in India, that’s where the value addition happens. But for manufacturing we have to adhere to global standards and policies on ultra-processed and junk foods.

Dr Arpita Mukherjee is a Professor at ICRIER and Member, Committee for Advanced Trade Research, TPCI. She has several years of experience in policy-oriented research, working closely with the Government of India and policymakers in the EU, US, ASEAN and in East Asian countries. She has conducted studies for international organizations such as ADB, ADBI, ASEAN Secretariat, FCO (UK), Italian Trade Commission, Konrad-Adenauer Stiftung (KAS), OECD, Taipei Economic and Cultural Centre (TECC), UNCTAD and the WTO and Indian industry associations such as NASSCOM, FICCI, IBA, IDSA and EICI. Her research is a key contributor to India’s negotiating strategies in the WTO and bilateral agreements. The views expressed here are her own.

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