Friday, July 26, 2013

Indian investments in Korea: A wealth of opportunity

First published in The Hindu Business Line, July 25th
Sandwiched between China and Japan, Korea somehow has escaped the sweep of Indian businesses seeking to expand in East Asia. The ‘Look East’ policy seems to somehow overlook the most stable economy in the region.

In the last fiscal, Indian direct investment in Korea, as tracked by the Reserve Bank of India, amounted to only $3.51 million. In comparison, investments in China were pegged at $66.68 million and in Japan at $19.21 million.

In other words, the data on Indian ODI show that investments in Korea were just 3.93 per cent of the total investments in the Big-3 East Asian economies, even three years after the signing of the India-Korea Comprehensive Economic Partnership Agreement (CEPA), a de facto free trade agreement.

It was widely anticipated that the CEPA that came into effect in January 2010 would lead to more Indian investments in Korea. Seoul has abolished the import tariff of 93 per cent on Indian imports and India has done the same on 75 per cent of Korean imports. Besides, the agreement sought to increase the interactive trade account as it includes investment in various sectors such as goods, services and even intellectual property.

While bilateral trade has comparatively improved (with a target of $30 billion by 2014), few Indian companies have used the deal to make inroads into the Korean market.

To date, the cumulative investment is estimated to be a little over $1 billion, with most of it hardly having any connection to the CEPA. Among the noticeable investors are Tata Motors (which acquired Daewoo Commercial Vehicle in 2004), Novelis Inc., a subsidiary of Hindalco Industries Ltd (which acquired Alcan Taihan Aluminum Limited in January 2005) and Mahindra and Mahindra (which acquired Ssangyong Motors in March 2011). Nakhoda Ltd. and Creative are the other smaller investors.

While Indian software companies such as TCS, Wipro and L&T Infotech have a small presence in Korea (with representative offices), they have not made any large commitments.

The only noticeable change in the past three years is the influx of professional workers, such as computer programmers and engineers, and a few English language instructors. Under the CEPA, 163 such professions are allowed access to the Korean services market. While a few years ago, it was difficult to spot Indians on the streets; today, it is not an uncommon sight.

Does it mean that Korea does not offer any potential for Indian businesses? On the contrary, as an FDI destination, the nation has several strengths compared to China and Japan.

As noted by Dr Ahn Choong-yong, Foreign Investment Ombudsman, KOTRA, in recent years Korea has emerged one of the prime investment locations in the Asia-Pacific region.

Its strong economic growth, increasingly favorable business environment, and rapid transformation into a truly knowledge-based information society have contributed to the creation of a wealth of investment opportunities.

It is also most active in pursuing FTAs with large economic blocs. Korea has already struck a deal with European Union, the US and ASEAN. These are helping foreign investors based in Korea to do business more effectively in the world market.

Also, among Korea's greatest strengths are its excellent pool of human resources and its optimal business environment.

To fulfill their globalization objectives, major multinational corporations also recognize Korea as an ideal destination for their production, logistics and R&D base.

Business operating costs in Korea are competitive due to the country's advanced IT infrastructure and low overhead costs including electricity and water. In particular, the basic monthly charge for Internet use in Korea is approximately a tenth that in China. Moreover, rental costs in Korea are also lower than in China, Singapore and Hong Kong.

In terms of tax rate comparisons, both corporate and income-tax rates in Korea are higher than in Singapore and Hong Kong, but lower than in Japan and China.

Recently, the World Bank ranked Korea No 8 (among 185 countries) in its Ease of Doing Business category for 2012.

This sheds light on how easy or difficult it is for entrepreneurs to open and run a business when complying with relevant regulations.

It measures and tracks changes in regulations affecting 11 areas in the lifecycle of a business: Starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency, and employing workers.

It makes much better sense to identify appropriate industries and then invest in Korea rather than following the bandwagon to China.

Many sectors provide ample opportunities for Indian investments.

Indian suppliers with products that have eliminated or lower tariffs from the CEPA should actively look for business with Korean partners.

Indian buyers should also keep in mind that they can obtain high quality Korean goods at a better price through the tariff reduction. Financial and legal services, auto-parts, food, pharmaceuticals, fashion and textiles, and IT are just some of the areas Indian businesses should start considering.

Korea is seen as a stable springboard to jump into East Asia, and Indian businesses should not miss it.

Korean investments in India: Growing, but at a slow pace

First published in The Hindu Business Line, July 25th
Large Korean brands are household names in India and their strength has grown in the years since they first started operations.

However, the fact remains that Korean FDI inflows have been growing at a very tardy pace, and companies seem to be keener to explore other emerging markets.

Many Korean companies were the first movers as FDI investors in India, following the spate of reforms and liberalization since 1991. They started to invest by forming joint ventures with local companies or established wholly owned subsidiaries, predominantly in automobiles and white consumer goods. With clever business models, they managed to make deep inroads into the Indian market, in a relatively short period of time, led by technology giants Samsung Electronics, LG Electronics, and Hyundai Motor.

More recently Lotte Group, Doosan Heavy Industries and POSCO have become familiar names in the Indian business lexicon. As of today, there are officially 603 large and small Korean firms, which have offices in India.

It may come as a surprise, therefore, that India figures quite low on the list of favored investment destinations for Korean companies, with a rank of 16 worldwide.

According to the latest foreign investment statistics published by Exim Bank Korea, till end-2012, total Korean investments in India amounted to just 1.25 per cent ($2.67 billion of their $215 billion overseas investments).

In comparison, across the Asian countries, the Korean companies have pumped in $39.67 billion in China, $14.18 billion in Hong Kong, $8.38 billion in Vietnam, $6.73 billion in Indonesia and $4.65 billion in Singapore, $3.95 billion in Malaysia and $3.81 billion in Japan.

Looking at it from India’s point of view, the latest available analysis of FDI equity inflows from April-2000 to end-February 2013, by the Department of Industrial Policy & Promotion shows that Korea ranks 13th with $1.22 billion, which represents 0.64 per cent of the cumulative inflows received.

The top sectors that attracted FDI equity inflows from Korea are: metallurgical industries (26 per cent); prime mover- other than electrical generators (10 per cent); machine tools (8 per cent); automobile industry (7 per cent); and electronics (6 per cent).

Among the companies that invested, POSCO tops the list for this period, followed by Hyundai Mobis, Mirae Asset Investment Management, Samsung Electronics, Doosan Heavy Industries, Korea Western Power, Hyundai Heavy Industries, Lotte Confectionery and Lanco Intratech.

INDUSTRIAL ZONE

In the next few years, more investments are likely in the exclusive Korean Industrial Zone that will soon come up in the Neemrana region of Alwar district in Rajasthan. The 250-acre zone is seeking to attract Korean entrepreneurs and facilitate technology transfer between the nations.

A memorandum of understanding was signed between the Rajasthan Industrial Development and Investment Corporation (RIICO) and the South Korean Trade Promotion Agency (KOTRA) in March. But it remains to be seen how the project progresses before drawing any conclusions.

As can be seen from the table, Korean investment has indeed perked up during the last two years, but is still way below potential. The India-Korea Comprehensive Economic Partnership Agreement (CEPA), in force since January 2010, has not really been effective in attracting large-scale investments into the country, as desired.

Some experts argue that it is too early to draw any conclusion on the effect of CEPA in attracting Korean investments, and it could also be because of the global economic downturn and problems in the European Union.

As noted by Dr Cho Choong-jae, Head of India-South Asia Division at Korea Institute of International Economic Policy, for the most part, Korean companies are satisfied with their growth in India, and positive concerning prospects for growth in the next three years.

WAGE FACTOR

A survey conducted by his institute among Korean companies based in India showed that entering and gaining access to India’s domestic market constituted the biggest motivation for Korean manufacturing companies in India. Particularly since wages were lower than those in China, but comparable to Indonesia and only slightly higher than in Vietnam.

Entry into India’s domestic market was also the prime-motivating factor in investments by Korean non-manufacturing firms, in addition to expanding their presence in the subcontinent.

“It is, however, a fact that foreign firms continue to face many non-tariff barriers in India and unless the situation improves, there will be very little motivation for other companies to seriously consider India as an investment location.”

PROBLEMS

As he points out, India’s FDI policy has been one of gradual opening up. Much of the increase in FDI inflows is in the services sector. However, FDI inflows from Korea have been mostly in the manufacturing industries.

The main irritants are, of course, poor infrastructure, corruption, labour management, taxes, administrative services, fluctuating government policies at the central and state levels, political intervention, customs and clearance procedures.

In the words of Dr Lee Soon-chul, Assistant Professor at Busan University of Foreign Studies, “many recent policies of the Indian government have confused foreign investors.”

He was referring to the delay in opening of the retail sector, telecom policy flip-flops and retroactive taxation of foreign firms that have invested in India.

Such uncertain policies have made investors opt for divestment or to delay their planned investment.

There have been many instances of Korean companies sending a few executives to India for a couple of months to scout for opportunities, but then giving up in despair because of the red tape and corruption.

A senior executive of a large construction conglomerate in Korea, who did not want to be named, confessed that he spent six months in New Delhi last year, along with a few colleagues, trying to negotiate government infrastructure projects with an Indian partner. However, the large scale corruption and lack of transparency made them shift focus to Vietnam.

“The licensing and inspection costs are very high. Additionally, cumbersome bureaucratic procedures, the lack of government accountability and a congested judicial system where cases can linger on for several years, made my company change its mind. The Indian government does not walk the talk.”

There are also other barriers such as problems of land acquisition at the stage of investment implementation, due to the opposition of local residents. Many Korean companies realized that if a big company like POSCO can face difficulties, despite government assurances, it would be even tougher for smaller companies to survive in India.

Dr Choi Ho-sang, Research Fellow at the Korea Center for International Finance, in a recent article, observes that the reason FDI in India has been sluggish is that foreign capital regulations have not been relaxed sufficiently.

“The second UPA administration, which came into power in 2009, set the relaxation of regulations as one of its major policies in order to attract foreign capital. Foreign investors welcomed the new policy with great expectations, but when foreign capital regulations were not relaxed as had been promised, the expected increase in foreign investment did not happen either.”

“Moreover, the protectionist labour laws, complex tax system, and inadequate infrastructure such as roads and electricity, all render India a less attractive investment outlet compared with other Asian countries,” Dr Choi said.

Unlike most other countries, the Indian government does not provide attractive incentives to foreign companies entering the market.

For instance, the Delhi Mumbai Industrial Corridor (DMIC), aimed at the development of futuristic industrial cities in India, can compete with the best manufacturing and investment destinations in the world and is expected to attract huge FDI inflows. Ordinarily, Korean investors would jump at such an opportunity. However, no special incentives are being offered to foreign investors under this initiative.

The implementation of genuine and operational policies of opening up to foreign capital is the key to sustaining investment growth.

OPPORTUNITIES

India’s booming knowledge-based service industry complements the hardware and manufacturing-based economic structure of Korea. India’s capabilities in pharmaceutical industry, IT software and auto components usefully complement Korean competence in heavy engineering, automobiles, machinery and electronic hardware. There is also potential for bilateral cooperation in India’s CDMA service, high speed Internet and e-governance.

As noted by Indian Ambassador to South Korea Vishnu Prakash, “the synergies inherent in the complementarities of the two economies can be harnessed for mutual benefit by the business and industry of the two countries. The expansion in trade and investment flows would create demand for related infrastructure and other supporting socio-economic services.”

Opportunities for expanding business cooperation exist in engineering, design engineering and construction services. Then there is the power sector and India’s plans to enhance civil nuclear power generation capacity.

The economies of India and Korea are highly complementary in terms of factor endowment, capabilities and specialization. If the investment barriers are effectively tackled, India’s cost-effective human resources may complement growing labour scarcity and rising wages in Korea, and a number of companies may consider India as an ideal destination for their relocation or global sourcing.

Saturday, June 1, 2013

Interview: Dr. Ad Juriaanse, Managing Director and Dr. Liz Kamei, Vice President of business development for Asia Pacific, NIZO Food Research

Dr. Ad Juriaanse did a PhD in Biochemistry. He worked for 14 years for Unilever in the Netherlands and the United Kingdom in different positions in both R&D and operating companies.  Since 1995 he is managing director of NIZO food research.
Dr. Liz Kamei obtained her PhD in biochemistry in the UK and then went to work as a research scientist for Kirin Breweries, a Japanese beverage company. She transferred to Gunma University where she worked as associate professor in the Faculty of Engineering before returning to a business position in the UK. Liz has worked in business development and open innovation roles, mainly focusing on the Asian-Pacific food & beverage markets.
She is fluent in Japanese and is currently learning Korean with the aim of creating good working relationships with our friends in the Korean food & beverage industry. At NIZO, she is the Vice President of business development for Asia Pacific.
Ad: It is a pleasure to speak about NIZO and our aspirations for developing our business within Korea. It is my role to oversee NIZO’s activities on a global basis, and Liz is leading our business activities in Asia-Pacific. I am inviting Liz to comment in this interview as it is our hope that our friends in Korea will see her as the point of contact for NIZO and will reach out to her to discuss their innovation ambitions and objectives.
What are the key objectives of NIZO this year, in terms of expanding operations?
Ad: Our overall objective is to carry on being relevant to the global food industry by maintaining our cutting edge capabilities and evolving as an organization so that we are always a key part of food innovation networks. Liz, what do you have to say about our activities in Asia-Pacific?
Liz: Our ambition for Asia Pacific is to really understand the innovation needs of our current and potential partners and provide the best match of NIZO expertise to meet those needs. That expertise might be flavour, texture, gut health food safety or process optimization – it depends on the needs of the client. My personal aim is to act as an initiator of relationships that lead to co-creation and breakthrough innovations.
 What are the competitive advantages that NIZO offers?
Ad: NIZO is an independent research company that assists the food industry with their innovations and optimizations on a project basis giving maximum flexibility to the client. We are convinced that good food needs good science and that can be achieved by working together intimately with our clients on those things that are relevant to their business.  As a hub of food science expertise, working with NIZO gives our clients access to the latest science and technology. We believe it is important to stress that IP generated during projects belongs to the client.
Our experts have a variety of backgrounds - both academic and industrial – and they understand the needs of industry. In addition, our understanding and expertise has grown as a result of the many successful projects carried out for food and ingredient companies over our 65 year history.  Thus, NIZO also serves as an excellent gateway to the European markets.
Liz: I would emphasize the fact that our scientists have a broad range of experiences gained from different organizations. As you may know, innovation happens when a diverse set of skills and experiences are brought together to create something new. In addition, our scientists all have their own personal networks into industry and academia – they span the boundaries of our organization – and that also amplifies the opportunities to innovate. This really illustrates the importance of being part of diverse networks –and it is something that is not easy to replicate in other organizations.
What are your plans for operation in Korea?
Ad: Liz has the overview of our ideas for Korea, so I will let her answer.
Liz: We realize the importance of building the business relationship and understanding our client’s needs and ways of working. We welcome the opportunity to learn how to best work with you.
We are considering opportunities in the near future (2014)  to take NIZO experts to Korea and to run one of the well-respected NIZO technical courses. This will be a learning opportunity for NIZO, and a chance for potential clients to interact with our experts and learn about NIZO. Our experts are of course available for consultancies, depending on the needs of Foodpolis in general and specific companies in particular. We welcome the chance to discuss potential opportunities with our friends in Korea.
Any thoughts on FOODPOLIS, the Korean government initiative to develop the food industry in Northeast Asia?
Liz: The incredible progress made by Korea in other technical fields is well known and we expect that this initiative will be backed by the same dedication and energy. We are excited by the future of Foodpolis.

Ad: All I can add is that we are delighted to be invited to attend the 3rd International Food Cluster Forum and have the chance to visit the site of Foodpolis.

Water Challenges for the Food Industry

The role of the food industry in helping consumers eat healthily and sustainably has been receiving considerable attention in recent years. There are many challenges the industry faces, in securing the future supply of food –water being among the most important.
The United Nations has declared 2013 the International Year of Water Cooperation. The objective is to raise awareness, both on the potential for increased cooperation, and on the challenges facing water management in light of the increased demand for water access, allocation and services.
The year will highlight the history of successful water cooperation, as well as identify issues on education, diplomacy, trans boundary water management, financing, national and international legal frameworks, and linkages with the Millennium Development Goals. It also will provide an opportunity to capitalize on the momentum created at the United Nations Conference on Sustainable Development (Rio+20), and to support the formulation of new objectives that will contribute towards developing water resources that are truly sustainable.
Water, a vital resource unlike any other knows no borders. But for perhaps the first time in history, global demand may outstrip supply. The world’s population is around 7 billion people and by 2050 it may well grow to 9 billion. And by that time, 70% of the people will be urbanized. Cities may take less than 1% of the land, but they can take up to 20% of the water. As rapid urbanization, climate change and growing food needs put ever-increasing pressure on freshwater resources; the objective of the year is to draw attention to the benefits of cooperation in water management. It will serve to highlight successful examples of water cooperation and explore key issues, including water diplomacy, trans-boundary water management and financial cooperation.
The potential for water cooperation is great and its benefits, whether in economic, social or environmental terms, are considerable. All water systems are extremely complex, be they management systems at the local or national level, internationally shared river basins or parts of the natural hydrological cycle. Managing these systems requires multiple actors, from users and managers to experts from various disciplines and decision-makers.
Cooperation is crucial not only to ensure the sustainable and equitable distribution of water but also to foster and maintain peaceful relations within and among communities. At the government level, different ministries can cooperate and mainstream awareness on water management into other sectors; at the community level users can cooperate through water users’ associations; at the trans boundary level joint management institutions can help to distribute and protect shared resources; and at the international level the various UN agencies can work together to promote the sustainable management of water worldwide.
Cooperation mechanisms vary in terms of decision-making structures, levels of participation and rules and regulations. They can take the form of informal agreements or formal institutions, and they range from a simple exchange of information to joint management mechanisms.
While governments the world over are geared up to meet the water challenges, what about the corporate sector?
Water in Industrial Use
Agriculture at present uses the lion's share of water worldwide, with between 70% and 90% of all water in most regions. As noted by Dr Ania Grobicki, Executive Secretary of the Global Water Partnership, United Nations Industrial Development Organization, in her study on ‘The Future of Water Use in Industry,’ interestingly, the East Asia/Pacific region and sub-Saharan Africa are the two exceptions to this, with industrial water use taking a large proportion of water, but for opposite reasons: in East Asia/Pacific, industry has grown extremely rapidly and often unsustainably in recent years. Industry now provides 48% of the total GDP in the region, and this proportion is still increasing.
On the other hand, in sub-Saharan Africa, industry takes a large share of total water use not because the industrial sector is especially strong, but because most agriculture is rain-fed and there is relatively little water storage available on the continent.
A 2010 report titled Direct and Indirect Water Withdrawals for U.S. Industrial Sectors, published by Carnegie Mellon University, has segmented water usage by industry sector, taking into consideration both direct water usage (bringing water into a manufacturing facility) and indirect water usage (when a manufacturing facility is buying items from the supply chain that were manufactured by someone else using water).
The findings show that in terms of direct water usage, the agriculture and power-generation industries together are responsible for 90 percent of direct water withdrawals. However, a majority of water usage (about 60 percent) is indirect and more than 96 percent of industry sectors use more water indirectly in their supply chains.
Fruit & Vegetable Farming
According to the report, while meat farming is often targeted as an energy- and carbon-intensive sector, it shows up lower on the list in terms of water use per dollar of economic output than fruit, grain and vegetable farming. Thirsty cash crops like wheat, corn, rice, cotton and sugarcane lead the pack in water usage.
Power Generation
Water is used at almost every stage of energy production, including pumping crude oil, removing pollutants from power plant exhaust, generating steam to run turbines, washing away residue after fossil fuels are burned and keeping power plants cool. Within the energy industry, the most water-hungry process is the thermoelectric-power industry, which uses plentiful amounts of water to cool electricity-generating equipment. Overall, electrical power production uses more water than any other single industrial process, according to IEEE Spectrum.
Textiles and Garments
The textile industry is one of the biggest creators of wastewater worldwide.  According to the U.S. EPA, it takes 2,900 gallons of water to produce a single pair of jeans. Most of this water is used in what’s known as “wet processing” as well as dyeing of fabric.
Meat Production
According to a study by the UNESCO Institute for Water Education, conducted between 1996 and 2005, “29 percent of the total water footprint of the agricultural sector in the world is related to the production of animal products.” One-third of that water is used to raise beef cattle.
Beverage Industry
Another heavy user of water is the beverage industry, which produces sodas, beers, juices and other drinks. Yet it isn’t necessarily the production and bottling processes that are to blame. Rather, it is the plants: the beverage industry requires farmed products such as sugar, barley, coffee, chocolate, lemons, vanilla and other plant-derived ingredients. All in all, it takes between 180 and 328 gallons of water to produce a 2-liter bottle of soda, 20 gallons of water to make a pint of beer and nearly 37 gallons of water to produce the ingredients to make a single cup of coffee, according to the Water Footprint Network.
Automotive Manufacturing
It takes about 39,000 gallons of water to produce the average domestic car, including the tires. Major water uses in the automotive manufacturing industry include surface treatment and coating, paint spray booths, washing/rinsing/hosing, cooling, air conditioning systems and boilers.
Water in Food Industry
It goes without saying that the corporate sector, in particular the food and beverages industry too can play a very important role in water cooperation.
Water is a critical resource for the F&B industries. It is used for numerous purposes, including chilling, heating, washing, rinsing, sanitizing, processing, and conveying. Large amounts of water are also incorporated directly into a wide range of products.
As noted by Grace Communications Foundation (www.gracelinks.org), which builds partnerships and develops innovative media strategies that increase public awareness of the relationships among food, water and energy systems, it takes a surprisingly large amount of water to make processed foods and beverages.
What we eat everyday – our diet – makes up 50 percent of our total water footprint, which includes the enormous volume of “virtual water” needed to produce our food.
“For instance, wheat requires 132 gallons of water per pound, and a pound of cheese takes about 600 gallons. Therefore, a cheese sandwich represents approximately 100 gallons of water (and that’s just for a couple of cheese slices). Throw in a bag of potato chips and it takes about 150 gallons of water to make your lunch! Thirsty? If you feel like rinsing it down with a cold glass of milk, add an extra 100 gallons of water onto your tab. The sheer amount of water used to make the food we eat every day can be mind-boggling.”
On average it takes about 108 gallons of water to produce one pound of corn. If that corn is then used as cattle feed, additional water is required for cleaning and processing. Factoring in feed and water, it can take around 1,800 gallons of water to produce a single pound of beef.
The major demands for water during food processing are:
• Washing / cleaning of (raw) products
• Transport of products
• Dissolving of ingredients
• Treatment of the product (e.g. alteration, separation)
• Provision of appropriate water content in the final product
• Cooling processes
• Steam generation
• Cleaning / rinsing of equipment
• Abnormal incidents (e.g. fire protection)
• Sanitation.
The problems caused by pressures on water supplies mean that the food industry is being forced to consider both more efficient uses of water and alternative sources of water. It is also necessary to minimize the use of water in both production and processing, and this will inevitably lead to reuse of water in both.
In food processing a broad range of possibilities exist with regard to water management, including increased efficiency of water use and the promotion of water reuse. The latter can be made more efficient by tailoring the water quality requirements to the particular process.
Water and Wastewater Usage
Traditionally, the food-processing industry has been a large water user. Water is used as an ingredient, an initial and intermediate cleaning source, an efficient transportation conveyor of raw materials, and the principal agent used in sanitizing plant machinery and areas. Although water use will always be a part of the food-processing industry, it has become the principal target for pollution prevention, source reduction practices.
In food processing plants, water is used for many purposes. Its use starts with conditioning raw materials, such as soaking, cleaning, blanching, and chilling. It continues with cooling, sanitizing, steam generation for sterilization, power and process heating, and finally, direct 'in-process' use. The water classification categories used in the food and beverage industries are: general purpose, process, cooling and boiler feed.
Sanitary conditions have always been a concern for food products created in the manufacturing process. Disinfection through chlorination has been the quickest means of disinfecting wastewater. Disinfection has come under criticism due to chlorination byproducts and toxicity concerns that residual chlorine pose to aquatic life. The two principal means of disinfecting wastewater without using chlorination are ozone disinfection or UV disinfection. Ozonation works on the same principle as chlorination but leaves no residual in the treated wastewater and does not produce the magnitude of disinfection byproducts that chlorination produces. UV disinfection is even more environmentally friendly than ozone but requires more space and cleaner wastewater to be effective. Both technologies require high capital and operating costs.
General Purpose Water
This water includes all water used in washing and sanitizing raw materials, processing equipment, plant facility and ancillary equipment. It is used in the largest amounts and it should be potable, clear, colorless, and free of contaminants that affect taste or odor. In-plant chlorination is usually the only treatment required.
The main advantage of in-plant chlorination of general-purpose water is the reduction of microbial number on raw materials, prepared products, and on equipment surfaces in the plant. There is no action as important to food and beverage processing as control of microorganisms.
Chlorinated water is often used for direct rinse of raw material or prepared products. When this is done, precautions must be taken to ensure that the flavor of the finished product has not been adversely affected
Process Water
Water used for cooking or added directly to the product must be potable and must be of sufficient quality not to degrade product quality. This includes being free of dissolved minerals that make water excessively hard or affect taste.
Most of the product in beverage production consists of process water, so treatment to achieve taste objectives is especially important. Often, treatment beyond that required to meet safe drinking water standards is essential for consistent high quality.
Treatment processes used in bottled water often include softening, reverse osmosis, and deionization. Many other beverages would require similar treatment.
Hard water contains minerals the can affect the texture of the raw materials to be processed, such as certain vegetables. Iron, manganese or sulfate can have an undesirable affect on the taste of the product.
Water softening might be required to prevent the formation of deposits on the surfaces of equipment, and canning and bottling materials. The type of food process determines specific quality requirements of the water beyond being potable.
Prior to its use in food processing, water must be microbiologically safe (free of bacteria, virus, protozoa cysts, and worms). Methods to remove suspended matter greatly reduce microorganisms, but terminal disinfection provides an essential added barrier.
The methods used for terminal disinfection include chemical, thermal, radiation, and ultrasonic treatment or cell disruption. Chemical treatment with chlorine or chlorine derivatives is the least expensive and most common process.
Cooling Water
Cooling water not in contact with food products or sealed containers does not have to be potable or meet the requirements of process water. The removal of staining minerals and odors is not as important. However, preventing the accumulation of scale in pipes and equipment is important, especially when cooling water is recycled.
The most efficient processing systems include recycling circuits to reduce cooling water waste, thus reducing processing costs. Potable water, even from public supplies, often has to receive additional treatment such as softening to avoid scale and deposits to be suitable for cooling.
Boiler Feed Water
Boiler feed water requires the removal of hardness. This may be the only treatment process applied to the water. If this water is not in contact with food, it does not have to be potable. Boiler feed water for high-pressure boilers requires the removal of all dissolved solids or demineralization. Almost all-potable water must have minerals removed through additional treatment to be suitable for boiler feed.
Not only can microorganisms produce color and odor in water, but also if they are introduced into the production process, they can contaminate the equipment and finished product. Process contamination could damage and spoil foodstuffs. If pathogenic bacteria are introduced in the contamination, food poisoning could occur.
When water is used as a food ingredient, its quality can affect the properties of the food, including texture, shelf stability, appearance, aroma and flavor.
As a processing aid, water may be used for conveying, heating, cooling, rinsing, dissolving, dispersing, blanketing, diluting, separating, steam generation and other activities. In each case, purity of the water will affect its performance. Cleaning activities in the food industry involve the use of water as a carrying agent, dispersant, solvent and diluent.
Water Sources
The two primary sources of fresh water are surface and ground water. Food processors generally obtain water from municipal sources or owned wells. Knowledge of the water source and how it was obtained will help to indicate any required in-house treatments. Surface waters are from rivers, lakes and reservoirs, and may have higher levels of suspended materials, turbidity, temperature fluctuations and mineral content. Ground water from springs and wells tends to be high in dissolved minerals, with a relatively constant temperature over time.
Water Quality
Impurity of water is identified and measured in three basic categories: qualitative, general quantitative and specific. Qualitative identification, includes turbidity, taste, color and odor, and describes obvious conditions of water. Most qualitative measures do not describe the concentration of the contamination and do not identify the source. It should be noted, however, that taste, color and odor evaluations may be very accurate qualitative measurements that can be rapidly completed.
Water scarcity is a key concern for the food and drink industry, as disruptions in operations due to water availability, increases in water expenses and other adverse water-related impacts would be detrimental to the industry’s competitiveness.
Water Usage
As Food Drink Europe’s  (www.fooddrinkeurope.eu/) Environmental Sustainability Vision towards 2030 points out, the food and drink industry has shown leadership in its voluntarily actions to reduce water use, as the quality and quantity of water available is critical for the sector’s sustainability. A certain amount of water use is unavoidable for the production of food and drink products and to ensure compliance with stringent EU hygiene requirements, as food safety and hygiene are of utmost importance.
“While the Europe’s food and drink industry already leads in the field and “water footprint” is minimal (1.8% of total private sector use), producers across the world have strived to further reduce their water use and better manage water resources from factory to final product. Leading companies are already reporting measurable achievements in improving water efficiency.
Actions include developing and using water consumption monitoring tools, rainwater harvesting, installing water recovery and recirculation systems, modifying cleaning and housekeeping practices, preventing and stopping water leakages, using sensor-controlled taps or hand-controlled triggers on hoses, using low volume high pressure water jets, redesigning processing techniques to reduce water use and staff training.”
A 2012 report from sustainable business analyst Verdantix, titled The State of Global Corporate Water Strategies, was compiled after interviewing senior executives in a number of $1 billion or greater firms from different sectors in 10 countries. Verdantix found that formal water strategies are becoming more common. In water-intensive industries, about 90 percent of businesses report having a formal water strategy. The numbers are lower in non-water-intensive industries, but are still substantial: about 60 percent. In water-intensive industries, about 93 percent of companies issue formal reports about their water usage and conservation practices, as do about 77 percent of companies in lower water-intensive industries.
Companies are realizing that as water becomes scarcer in places they manufacture, wasteful production methods present a danger to operations, particularly if local governments turn off the tap or put huge surcharges on water use. It’s in the businesses’ best interests to put some water conversation programs into place now and wean themselves off wasteful processes in favor of more water-conserving production methods.
To that end, according to the study, companies are using water metering and other technology solutions, such as water accounting; water-footprinting tools and product lifecycle assessment (LCA) software that helps them outline the environmental impact of their products and processes.
Suggestions for Improvement
The changing climate with more frequent extreme weather events requires today’s businesses to plan for an unpredictable and inconsistent water supply via more sophisticated water management practices, according to a new report released on April 15th, by the World Business Council for Sustainable Development (WBCSD).
The report, Sharing Water: Engaging Business emphasizes the crucial role of business in ensuring responsible management of water resources and encourages greater collaboration across sectors. The report finds that leading companies have begun shifting their perspective beyond merely managing operational water use to becoming more conscious of how corporate actions impact local and regional water resources and, conversely, how water resources and watersheds impact business.
“Increasing global demand and the impacts of climate change are placing unprecedented strain on freshwater resources,” said WBCSD President Peter Bakker. “In order to ensure a viable business future, companies are calling for collective management and collaboration at the watershed level to ensure continued access to water supplies among competing demands.”
Water conservation groups say there is room in every step of the manufacturing process for improvement, whether by changing or modifying machinery to use less water, switching to waterless processes, or treating and reusing water. It’s a daunting prospect, and should begin with a comprehensive review and planning strategy.
Keep track of water usage. Many manufacturers today don’t track their water consumption, which should be the first step of reducing its use. Companies can begin by implementing a water auditing system that reviews the life cycle of water in the plant from intake to discharge. An audit should track primary uses, and also secondary uses, such as wash water, irrigation water for landscaping, and water used in restroom facilities. It should include where the water is used, what quality it needs to be, and where savings opportunities might exist. This can be accomplished by sub-metering of water, or breaking out each water-using process and measuring precisely how much is used.
Build a water management strategy. Once a company knows how much water it uses, it can begin to set specific targets for reduction and plan how to achieve them. This strategy should be reviewed at least once a year to ensure that it accommodates changing business needs.
Determine the areas where wastewater can be recaptured and reused. Chances are, not every water-based process requires fresh water: so-called “gray water” will do just as well for the purposes of cooling, rinsing, boiling, or flushing. There are benefits to such a switch beyond cutting water use. By reducing water discharge, companies may be able to minimize regulatory and discharge fees.
Recover waste heat instead of dousing it with water. One of the most common uses of water in manufacturing is for cooling hot machinery. Conversely, one of the easiest ways to reduce energy consumption is to recover waste heat and use it to heat the facility. Moving to a waste heat capture (or “cogeneration”) system can reduce both water usage and energy costs.
Invest in on-site water treatment. Rather than discharging used water and pulling fresh water from municipal systems, many companies have turned to treating wastewater on site to prepare it for re-use, in some cases using relatively inexpensive carbon filtration.
Recover water from steam boilers. Another common use of water in manufacturing is for boilers to generate steam. There is great potential for water loss here as the water turns to vapor and escapes the system. Many eco-minded companies are recapturing steam in heat exchangers designed to collect the condensate and return the water to the boiler.