Business, Government & Society

Prof. M. V. Rajeev Gowda Indian Institute of Management Bangalore gowda@iimb.ernet.in 98451 62171

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Pesticides in Colas
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Flashback 2003
In 2003, the Centre for Science and Environment (CSE), a non-governmental organization, said soft drinks produced by multinational giants Pepsico and Coca-Cola, contained toxins such as DDT that can contribute to cancer and a breakdown of the immune system. Tested products included Coke, Pepsi, and several other soft drinks (SevenUp, Mirinda, Fanta, Thums Up, Limca, & Sprite). CSE found that the Indian-produced Pepsi had 36 times the level of pesticide residues permitted under European Union regulations; Coca Cola's had 30 times. CSE said it had tested the same products in the US and found no such residues.

Corporate Reactions
Coke and Pepsi both denied CSEs allegations. Coke only "hinted at the issue" in ads as it didn't want to legitimize the interest group's claims. Coke became mired in technical detail, publicizing its own tests that showed the drinks met tough European standards and pointing out that India's Health Ministry had taken issue with CSE's testing methods. That was the start of a two-year slide for Coke's case sales, (15% drop) which analysts say was made worse by a troubled distribution system and a decision to raise prices in the midst of the pesticide controversy.

Parliaments Response
Parliament banned the drinks in its canteen. It also set up a Joint Parliamentary Committee to examine the issue. The JPC validated the findings of CSE and in early February 2004 asked the government to set standards for carbonated drinks. The Bureau of Indian Standards met over 20 times to deliberate on the standards. This was the first time standards were being formulated for pesticide residues in soft drinks by the BIS. In October 2005, after months of data analysis and discussion with all stakeholders including the two soft drink majors and CSE, it finalised the standards. But these standards had not yet been notified in 2006. Until standards are officially notified, they have no value.

2006: Deja Vu
The controversy flared up again in August of 2006, when CSE released its new test results. The study finds pesticide residues in all samples; it finds a cocktail of 3-5 different pesticides in all samples on an average 24 times higher than BIS [Bureau of Indian Standards] norms, which have been finalized but not yet notified. The levels in some samplesfor instance, Coca-Cola bought in Kolkataexceeded the BIS standards by 140 times for the deadly pesticide Lindane. Similarly, a Coca-Cola sample manufactured in Thane contained the neurotoxin Chlorpyrifos, 200 times the standard.

Counterevidence
India's Health Ministry said in a sworn statement to the Indian Supreme Court that Coke and Pepsi beverages tested in three government labs contained little to no pesticide residue, and none of the levels found exceeded "statutory limits." A prominent government lab in the United Kingdom also reported it found none of the pesticides cited by the public interest group.

Standards? Which? For Whom?

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When the controversy broke, New Delhi had not even formalized its own regulations. The levels that Coke and Pepsi were said to exceedby 24 timeswere still proposals that wouldnt go into effect until early 2007. Both companies had been strong supporters of new standards. They had participated actively in the governments standard setting process. n "It's absolutely in our interest to have clear regulations that are scientifically verifiable," says Mike White, chief executive of PepsiCo International.

Media Makes It an Emotive Issue

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Newspapers printed images of cans of the drinks with headlines like "toxiccocktail." News channels broadcast images of protesters pouring Coke down the throats of donkeys.

Political Response
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Governmental response was harsh. Seven of India's 28 states imposed partial bans on Coke and Pepsi. The state of Kerala banned the drinks altogether. Officials there have ignored a subsequent high court ruling overturning the ban (on the grounds that only the central government can ban a food product).

Judicial Response: Disclose!

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The Rajasthan High Court set a deadline of August 3, 2006 for Coke and Pepsi to disclose contents of soft drinks, including the permissible levels of pesticides and chemicals, on bottle labels. Coke & Pepsi, filed an appeal in Supreme Court against this order

Civil Society Response: Expanding Fronts of Attack

n

National Alliance of People's Movements coaxed the Central Pollution Control Board in Varanasi to visit a Coke bottling plant at Mehndiganj to check if toxic effluents were polluting water bodies & fields close to the unit. They alleged that around 25 lakh litres of ground water was being depleted daily by these companies pushing down the water level. (Incidentally, this was exactly what had happened in Plachimada in Kerala that resulted in the Coca Cola factory being closed.) According to Dr Sandeep Pandey, National Coordinator of the NAPM, the sludge from the factory had heavy metal concentrations like lead, chromium and cadmium that was over the permitted limit.

Interlude: The Cola Companies in India

Coca Colas History in India

India's leading soft drink until 1977; it left after the Janata government ordered it to turn over its secret formula & dilute stake in Indian unit as per FERA In 1993, it returned post-liberalization In 2005, Coca-Cola and Pepsi together held 95% market share of soft-drink sales in India. Greenpeace urged the Kerala government to close down the Coca-Cola bottling plant at Plachimada, in Palakkad district, for the "criminal cheating" it had indulged in by passing on to the farmers of the area "toxic wastes" in the guise of fertiliser. That plant was closed down also because of allegations that it was depleting the groundwater of the area; opposed by farmers

Pepsis History in India

Banned from import in 1970s for refusing to release list of ingredients. Gained entry into India in 1988 by creating a joint venture with Punjab Agro Industrial Corporation (PAIC) and Voltas, selling Lehar Pepsi till 1991. After liberalisation, Pepsico bought out its partners. Joint venture ended in 1994. Pepsi arrived on the market shortly after.

Can Coke & Pepsi Walk Away From the Indian market?
India is a small part of the global soft drink business. In 2005, India made up about 1.4 percent of the 20.6 billion cases of beverages Coke sold worldwide. Profits were even thinner Yet, India is key to Coke & Pepsi for their future. Sales of cola-type soft drinks are on the decline in the US, where consumers are turning to diet sodas, water, sports drinks & other noncarbonated beverages. That means companies have to look for future growth in countries such as India, where there are lots of people and a growing economy Indians consume only seven 8 oz servings per capita per year, while Mexicans consume 1500; scope for growth enormous!

Coke & Pepsis Economic Impact

Together, Coke and Pepsi have invested nearly $2 billion in India They employ about 12,500 people directly and support more than 200,000 indirectly given their huge purchases of India-made sugar, packaging material, and shipping services. Coke is even India's No. 1 consumer of mango pulp for one of its local soft drink offerings Of course, there is probably an adverse health impact from consumption of Coke & Pepsi But details of such externalities are unavailable

Back to the Action: How to Manage the Controversy?

The Two Sides: Coke vs. CSE

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Trace amounts of pesticides can be found in India's water supply and in its crops, as well as in raw ingredients such as sugar. n Coke says it treats the local water in its plants before using it to produce soft drinks. CSEs director, Sunita Narain, says pesticide residue can cause cancer, birth defects and damage to nervous and immune systems if consumed over a long period.

Risk Regulation & Implications

Refuting these allegations is difficult because: Standards for safe pesticide levels in drinks have been agreed on in India but never made a legal requirement. The industry continues to argue over whether tests are needed for the final product or the water that goes into the drinks. There is also debate over how to cleanse sugar of its pesticide traces and a recognition that India's groundwater is so badly contaminated that most food products contain some pesticide residue.

Science: Explaining the specifics

Asim Parekh, a vice president of Coca-Cola India, said his "heart sank" when he first heard the allegations because he knew consumers would be easily confused . "I have tried my level best to communicate this information. But even terminology like PPB - parts per billion - is difficult to comprehend. This makes our job very challenging." Bakshi, the Pepsi executive, also struggled with the message. "The subject is extremely technical. It is hard to explain the entire story. "

Tactical Aspects: Identity Politics?

Have Coke & Pepsi been singled out because they are foreignowned? "We are continuously challenged because of who we are," says Atul Singh, CEO of Coca-Cola India. But Indian soft drink makers have been tested for similar violations, and many people believe that pesticide levels are even higher in Indian-made milk and bottled tea. While pesticide residues are present in virtually all groundwater in India, New Delhi has largely ignored the problem.

Brand Vulnerability
Isdell of Coke said CSE "picked on carbonated soft drinks because that would get the headlines ... for a broader issue of pesticides in the food chain in India. David Cox, Coke's Hong Kong-based communications director for Asia, accused Sunita Narain, of "brandjacking" using Coke's brand name to draw attention to her campaign against pesticides. Bakshi, the head of Pepsi in India, said, "You are not just up against the person holding the press conference, but also the people who seize on the allegations, the other constituencies who jump on the fray."

Gaining Leverage
Sunita Narain acknowledged she targeted the soft drink giants to bring attention to the issue of pesticide contamination of food products but has stood by her testing.
"Our concern was that if we are finding pesticides in a product that is supposedly clean and safe, it means there is widespread contamination in India," Narain told National Public Radio's "Morning Edition"

Coke has joined Narain in calling for limits on pesticide residue in finished soft drinks, not just the water used to make them.

Crisis Response
In 2006, within a week of the CSE report, Coke launched the first of three rounds of newspaper ads refuting the claims. The ads were in the form of a letter from India's more than 50 companyowned and franchised Coke bottlers saying their products were safe. Similar letters were given to retailers. Merchandisers pressed stickers onto drink coolers that proclaimed Coke was "safety guaranteed." "We had a communication that took the bull by the horns," said Kini, Coke India's marketing chief.

Standard Operating Procedures?

Coke & Pepsi formed committees in India and the US, working in parallel on legal & PR issues. Worked around the clock fashioning rebuttals They commissioned their own laboratories to conduct tests and opted to wait until the results came through before commenting in detail. This approach quickly backfired: their reticence merely fanned consumer suspicion. They became bogged down in the technicalities of the allegations, instead of focusing on winning back the emotional support of their customers.

Coca-Cola also decided to go on the attack, though indirectly. n Coke officials from Delhi gave briefings during which they questioned the scientific credentials of their accusers. n They directed reporters to blogs containing large quantities of uniformly pro-Coke entries n They handed out the cellphone number for the director of an organization called the Center for Sanity and Balance in Public Life.

Coke also decided to address customers directly, printing an advertisement asking, "Is there anything safer for you to drink?" and inviting Indians to visit its plants to see how the beverage was made. Experience has shown that consumers are often reassured by the sight of the water filtration process in the factory. Coke said it had received about 2,000 calls from people interested in the tour. And, of course, Coke used the Aamir Khan ad

Assessing the Crisis Response

Coke and Pepsi stumbled badly in their response to the pesticide allegations: they underestimated how quickly this would spiral into a nationwide scandal misjudged the speed with which local politicians would seize on an Indian environmental group's report to attack powerful global brands failed to respond swiftly to quell the anxieties of their customers. In short, two of the world's biggest brands failed to do what they do best: pitch the virtues of their products directly to their customers.

PR Consultants Gyaan
Coke & Pepsi should have known betterSuhel Seth, Advisor to Coca Cola "Fringe politicians will continue to be publicly hostile to big Western companies, regardless of how eager they are for their investment." "Large multinational corporations are still seen by pockets of consumers and opinion makers as marauders and not as contributors." Levick, an American PR consultant, agrees: "They underestimated their own importance. "Much more than companies, they are symbols of the West. They don't realize how powerful that is."

"Crisis abhors a vacuum. They needed to show leadership. These minimalist statements were not adequate."Levick Because they failed to anticipate the political potency of the story, Coke and Pepsi initially hoped that the crisis would blow over and adopted a policy of virtual silence. "In the U.S. and the West there is a certain dignity to silence, said Seth, the Indian public relations expert . "But here people interpret silence as guilt. You have to roll up your sleeves and get into a street fight. Coke and Pepsi didn't understand that."

The companies also failed to realize how fast news travels in modern India "We are living in a new, very aware India," said Amit Agnihotri, a public relations analyst in Delhi. "We have 36 news channels. People are interested in what is happening around them. Coke and Pepsi haven't understood the power of this new India. They tried to wish this problem away, by ignoring it, by not responding to it. That won't work any more."

Sunita Narain Counterattacks

o

Takes on Cola cos: What a line of attack!

n

Pepsis ads denying it had pesticides in its drinks, said there were more pesticides in tea, eggs, rice & apples. Coca-Cola, in its defense, has similarly argued that as everything in India is contaminated, its drinks are safe. They say this is being done to target them, because they are big brands & US multinationals. The pesticide industry wants the focus not to be on pesticides but on heavy metals & other contaminants. They also say that they are being singled out. We also do not have the luxury of first cleaning agricultural raw material, then building our processed food industry. We will have to clean both ends of the food chainthe farm & the fork.

Sunita Narain Analyses MNC Tactics

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Tactics used by MNCs against opponents n Diversion is just one of the ploys. n The second is to Deny. This is where 'science' becomes a handy weapon. Even though science has created modern toxins, it is slow on generating knowledge about the impact of toxins and pollutants on our bodies and our environment. The polluters want 'conclusive' & 'incontrovertible evidence that there is cause & effect. We the victims have to prove our science. n The third tactic is to Discredit and Dismiss: your science is not good, it is not validated or peer reviewed. The health minister (Anbumoni Ramadoss) did exactly this when he used a halfbaked report to try & discredit our laboratory and our work on soft drinks and pesticides. n The fourth step in the polluter's game-plan is to Damn and to Destroy.

Paradox! Swaminathan S. Anklesaria Aiyar on Risk-Risk Tradeoffs

Colas are safer than alternatives. The biggest health risk comes not from pesticides but bacteria, which kill millions. Cola has far less bacteria. That is why many foreign tourists drink Coke, Pepsi or bottled water, & nothing else. Ironically, these three drinks are the ones targeted by CSE as being unsafe. Besides, the actual pesticide level, is 3,080 times higher in milk, 111,600 times in fruit, 69,700 times in vegetables, 60,000 times for tea leaves than in proposed cola standards. These are priority items in diet, and so are permitted high levels, If you ban colas, what will people switch to? Water, tea, cane juice & fruit juices. (More nutrition?) Banning colas will increase pesticide intake, not decrease it.

The cost is entirely bearable for cola companies. So OK

The Final WordIndra Nooyi

"One thing I should have done was appear in India three years ago and say: Cut it out. These products are the safest in the world, bar none. And your tests are wrong." [OK! This sounds like a good strategy]

"We have to invest, too, in educating communities in how to farm better, collect water, and then work with industry to retrofit plants and recycle." [Really? Doesnt sound like a typical Pepsico agenda!]

Tata Tea and ULFA

The History
Tata Tea had a major presence in Assam and owned several tea gardens In 1990, ULFA contacted them for the first time, asked for cash Tata Tea refused, and instead set up hospitals, adult literacy centres, childcare centres, a technical training institute and schools + scholarships, support for handicapped children Took Lifeline Express to Assam in 1995 August 1993: Bolin Bordoloi kidnapped

Company officials met Home Secretary, demanded protection But no response January 1996: Tata Tea expressed willingness to participate in development projects; sent copy of communication to State govt. Tata Tea CEO received threats from militant groups; requested central govt for help Talks at Bangkok in early 1996: Tata Tea

Following arrest of an ULFA member, links between Tata Tea and ULFA were publicly revealed Interrogation, cases against Tata Tea top management followed Tatas threatened to pull out of Assam Mediation by politicians Assam government decided to soft pedal the case

According to an analyst.
The determination of the state government to prosecute managers of the company for consorting with the enemy is sheer hypocrisy. With the Assam state government's writ barely extending beyond Guwahati and its compromised police and paramilitary forces unable to provide even minimal protection to the far-flung properties and personnel of tea companies, they had no option but to parley with militant

And according to Pritish Nandy

A government that cannot protect its people and its corporates, has no right to punish anyone who is protecting himself.

But the Assam government argued that

.. the funding of extremists by business houses was an anti-national act. Mahanta said, It is the moral responsibility of companies to inform the government, the police or intelligence agencies about extortion by militants.

The Course

Overview of the Course

Rationale: Everything you study in the MBA is focused on the world of the corporation This course takes you outside, to examine the external, environmental, societal forces that affect corporations and markets Emphasis is on political, social, institutional factors affecting corporations Very interdisciplinary, lots of great thinkers!

Course Evaluation ... Subject to Revision

10% Film or Book Review 25% Group Project Case Study on BGS Theme Let us immediately form groups of 5-6 (PGP) Identify topics and clear them with me 30% Mid-term Examination 35% Final Examination

The Professor

Introducing the Professor

Born Oct 29, 1963, Bangalore, India St. Josephs Boys High School, Bangalore BA: History, Economics, Political Science
St. Josephs College, Bangalore University, 1984

MA: Economics
Fordham University, New York, 1985

PhD: Public Policy and Management

Wharton School, University of Pennsylvania, Philadelphia, 1992

I have never left school! But

John M Olin Postdoctoral Fellow
Law School, University of California, Berkeley, 1990-91

Associate Professor and Research Fellow

Political Science + Science and Public Policy, University of Oklahoma, 1992-2000*

Professor
Economics and Social Sciences, Indian Institute of Management-Bangalore, 2000 present**

Chairperson, Centre for Public Policy, 2009-

*Assistant Professor, 1992-1999; **Associate Professor, 2000-2007

Some Other Things I Do

Quiz
Founder Secretary, Karnataka Quiz Association, 1983 BBC TV Mastermind India National Runner-up, 2001

Agitate
Triggered Bengaluru Unitesprotests in Bangalore against attacks on women by Sri Rama Sena

Blog
Check http://hamaracongress.com

Write
Book on Understanding India: Paradigm Shifts Book on Business, Government and Society in India

Run an NGO
Resurgent India Trust, aimed at youth empowerment

A Flavour of the Course

Topics Covered/Class Sessions

Introduction & Overview; BGS Mini Debates Role of the Corporation/Corporate Social Responsibility Rationale for Government Regulation Interest Groups Social Capital Media How People Reason and Respond Institutions

Indian Politics Indian Society Indian Economy India on the Global Stage: Foreign Policy Globalization Urbanization Environmental Issues Agrarian Crisis and the Rural Economy Innovation and the Knowledge Economy

The BGS Course Blog

In the spirit of Wiki, in the belief that ~350 student brains make up intellectual critical mass, in the hope that students read beyond class materials (if they read that at all :-) We are happy to unveil http://bgsatiim.wordpress.com Dedicated to discussions, debates, and links to interesting, topical material A platform for all of you to engage with ideas To make the BGS class come alive Check. Comment. Contribute.

Mini-debates on BGS Themes

Media: The media is fundamentally a business. Therefore paid news is acceptable Society: Artists and authors should have complete freedom of expression, even if their work offends the sentiments of certain sections of society Indian Society and Politics:

Themes
Professional Politicians Like Singapore, we should pay MPs salaries higher than similar jobs in the private sector Values and Indian Society Caste-based Census is a regressive idea. Junk it. Equity All non-government schools must reserve at least 25% of seats for poor children from the neighborhood

And
IIMs Social Responsibility Since the IIMs have been established by the government and heavily subsidised, all graduates must do a years rural service before taking up jobs of their choice