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Positive fallouts of l'affaire cola

ARVIND PANAGARIYA

WEDNESDAY, AUGUST 27, 2003 12:49:04 AM

The ongoing cola controversy offers a fascinating example of a responsible non-governmental organisation (NGO) advancing the cause of public policy in a globalising, democratic, developing country.

Begin by considering the broad facts. On August 5, 2003, the New Delhi-based NGO, Centre for Science and Environment (CSE), announced that according to its tests, 12 colas produced by multinationals Coke and Pepsi contained pesticide residues 11 to 70 times as high as the norms  prevailing in the European Union (EU). CSE explicitly acknowledged that the colas adhered to the local, Indian norms but argued that the multinationals practised double standard, selling less clean cola in India than in the EU and US.

The reaction to the CSE announcement was swift, with three states banning the colas and Parliament banishing them from its cafeterias. CEOs of Coke and Pepsi rushed to the defence of their products, issuing press statements that they met the same standard in India as in the US and Europe.

Simultaneously, health ministry ordered its own tests of the 12 colas. Its agencies, Central Food Technological Research Institute (CFTRI) of Mysore and Central Food Laboratory (CFL) of Kolkata found three colas to meet the EU standards but other nine to violate them with pesticide residue levels up to 5.2 times as high as the EU norms.

Judging by the press reports, in her statement to Parliament on August 21, health minister Sushma Swaraj seemed to give a slant to the findings that favoured the cola companies and admonished CSE. “Clean chit to cola companies” was the common theme of most press reports following her statement. Happily, cola companies accepted the CFTRI-CFL findings without qualification.

But the wheel of democracy took one more turn. Foul play, cried the Opposition, demanding investigation by a Joint Parliamentary Committee (JPC). Caught in the contradiction between the objective CFTRI-CFL findings and her somewhat partisan statement, Swaraj felt obliged to state the following day that she did not give a clean chit to colas and to accept the demand for JPC. At the time of writing, a JPC had been set up under the leadership of Sharad Pawar to probe the findings of CSE and suggest criteria for evolving suitable safety standards for soft drinks, fruit juices and other beverages.

It remains to be seen whether CFTRI-CFL findings are more accurate than those of CSE. Assuming such to be the case, CSE admittedly deserve a slap on the wrist for overstating its case. In view of the unparalleled trust the public places in it, it has the responsibility to take extra care to ensure the sanctity of its tests.

But CSE also deserves a pat on the back and a big applause. It took great courage on the part of its director Sunita Narain to challenge two giant multinationals, especially when the Union government had chosen to virtually ignore the matter in the wake of the CSE findings of high pesticide residues in bottled water six months earlier. While CFTRI and CFL have questioned the precision of CSE tests, the two institutions have essentially validated their central tendency: both found levels of pesticide residues up to five times as high as the EU norms in nine of the twelve colas.

Some argue that since pesticide residues in the colas have been found well within the national norms and it is the broader issue of contaminated water supply nation-wide that deserves priority, there is little rationale for setting up the JPC inquiry. Both arguments have their limitations.

As a nation, we need to have a public debate on whether we wish multinationals to adhere to their developed country health-safety standards or different, lower standards. The answer is not as clear-cut as may seem at first blush. Higher standards add to production costs and therefore lead to higher prices. Benefits from higher standards must be balanced against the losses from higher prices. Moreover, the chosen standard will likely be applied uniformly to multinationals and domestic suppliers of like products. In so far as multinationals have a comparative advantage in meeting the higher standard, it will place domestic suppliers at a disadvantage. For example, the adoption of the EU cola standard by India might drive Mangola out of its limited Mumbai market, hurting its customers.

As the economy globalises and MNCs enter food-processing activity in a big way, we will need to address the safety-standards issue well beyond colas. Pawar could use his considerable clout as the JPC chief to help charter the right course in this important area. He must steer the committee away from a witch-hunt of either CSE or cola companies and guide it towards developing appropriate safety-standards policies in sectors predominantly supplied by multinationals.

The need for greater attention to the general problem of contaminated water supply hardly justifies the moratorium on discussion of policy issues in other areas. The argument is partially grounded in the misguided belief that the JPC will take human and financial resources away from the fight against the general water contamination problem. On the contrary, discussion in the JPC may actually lead to increased pressure for addressing the broader problem. Moreover, as a large emerging nation, we can surely move on multiple policy fronts simultaneously.

Some may argue that such inquiries will undermine foreign investment. A moment’s reflection suggests the opposite, however. By clarifying the local norms and informing the public on product standards, such processes will actually benefit multinationals. When the dust settles on the current controversy, many more consumers will know that pesticide residues in the colas are far below those found in their daily water supply. This will make them more, not less, inclined to drink cola over lemonade and squash. Besides, multinationals understand the game; they know that sensitivity of the public to social responsibility of multinationals in developing democratic countries is a tiny bit more than in developed ones!

Economic Times, August 27, 2003

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