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US soft drinks lose their fizz in India

By Elizabeth Mills - posted Thursday, 24 August 2006

The recent allegation that a large number of soft drinks available on the Indian market contain high levels of pesticide residue has understandably created general unease among consumers.

The fact that 80 per cent of this market is dominated by products owned and produced by US soft drinks companies, Coca-Cola and Pepsico, has spelt at the very least, a major publicity problem for the two firms. At the same time, the issue has renewed the debate in India over food safety standards and while the drinks companies may be the ones under pressure for now, the issue has longer-term ramifications for the authorities.

In early August, the Delhi-based environmental and health watchdog, the Centre for Science and Environment (CSE), published a report in which it argued that in independent tests conducted on 57 samples of soft drinks made by the two companies, pesticide residues were recorded in all of the samples. Underlining that this is a nationwide problem, a total of 11 brands were selected from 12 states and 25 separate plants with all showing some level of pesticide residue.


Although most samples averaged levels of pesticide residue 24 times higher than permitted, in some cases it was reportedly 200 times higher. This has led to concerns about public health, with the report making a possible link between high pesticide residue levels and diseases like cancer.

The report has prompted a flurry of activity. A group of federal MPs have called for a ban on the products of both companies; a growing number of states have banned the sale of the beverages in question in schools and government buildings as well as in the vicinity of hospitals. The southern state of Kerala has gone a step further and banned the production and sale of both companies' products.

Coca-Cola and Pepsico executives in country are notably silent on the issue although comments have begun to emerge from the US, carefully couched in terms such as “disappointment” rather than overt anger. Instead, both companies have left the US government to issue more dire warnings to India over the impact that domestic moves against Coca-Cola and Pepsico may have on the investment situation.

This has allowed both companies to remain removed from the debate and able to focus on defending their products. To this end both have questioned the veracity of the tests conducted for the CSE and instead argued that their products meet all international standards. Several days after the watchdog's report emerged Coca-Cola made public a letter from the British government's Central Science Laboratory (CSL), which stated that standard testing practices were designed to test water rather than carbonated soft drinks. Coca-Cola followed this up by having its Indian brands tested at a CSL laboratory, with the results showing that the beverages all met EU safety standards.

At the moment, the debate is largely focused on the impact of the report's findings on the two companies. Both have launched fresh advertising campaigns and both can be expected to suffer as a result of the current debate and of course, state action. That said, it is unlikely that the federal government will take any action against either company, too fearful of the long-term damage this would do, not just to relations with the companies in question, but more broadly to foreign investment.

India has come a long way since the nationalist backlash of the 1970s, which forced the expulsion of both companies in 1977. There is no prospect of a repeat of this, but for a burgeoning economy that continues to attract rising but still relatively modest amounts of FDI, soothing investor fears is a key concern.


This is not the first time that Coca-Cola and Pepsico have faced this situation. The CSE first published a report - again citing independent laboratory tests on a range of soft drinks in the Indian marketplace - in July 2003. Although there had been rumblings about this sort of issue before then, the use of laboratory testing lent the accusations a certain gravitas and provided a quantifiable basis to the problem.

Both companies saw the sales of their products drop off and after initially rejecting the findings, the government committed to producing a set of standards governing acceptable pesticide residue levels in drinks. However, once the issue dissipated from public consciousness and soft drinks' sales recovered, the impetus for change slowed in the face of vested interests. As such, the official standards have never been finalised and remain unimplemented.

The CSE has itself said that it has no intention of attacking Coca-Cola and Pepsico per se, instead pointing out that they are in the firing line because of their large presence in the marketplace. Instead, the watchdog argues that its primary concern is to have official standards implemented and adhered to. What is different to the furore that surrounded the issue in 2003 is the fact the debate looks to be developing into one where consumers are questioning the safety of everything they consume.

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About the Author

Elizabeth Mills is an analyst covering South Asian issues for macro-economic forecaster, Global Insight.

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All articles by Elizabeth Mills

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