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INTERVIEW

“Reducing compliance burden key for safe food”
Monday, 14 October, 2019, 08 : 00 AM [IST]

Avantis, a leading reg-tech company, through its SaaS (Software as a Service) solution on its web and mobile platforms, is enabling food and beverage industry players to adhere to compliance. The Indian market is the sixth-largest in the world for food and beverage. Regulatory compliance is indispensable. India’s regulatory environment is highly dynamic. There are over 2,500 regulatory changes in a year to various compliance requirements such as forms, dates, calculations, procedures among others leading to critical changes to compliance obligations of a company. It is here we see that reducing the compliance burden is critical to bringing firms within the formal sector, and achieving the goal of safe food, said, Rishi Agrawal, co-founder and CEO, Avantis Regtech, in an interaction with Nandita Vijay. Excerpts:

Where does India stand in food compliance globally?
Food compliance is a challenge for regulators worldwide. World Bank Safe Food Imperative estimates that unsafe food costs low- and middle-income economies US$110 billion in lost productivity and medical expenses each year.

India has a high degree of complexity in its regulatory environment. A typical mid- to large- sized food processing company in India deals with 50-100 applicable Acts and a few thousand compliances per year. These compliances include licences, registrations, consent orders, renewals, filings and maintenance of registers. While, the primary regulator in India is the FSSAI, a company in food processing industry has to deal with six categories of compliances including labour, finance & taxation, secretarial, commercial, environment, health and safety and local laws.

A typical food processing company has corporate head office, regional offices, factories and warehouses. Their factories have several hoists, lifts, weighing equipment, packaging machines, vessels, mixers, grinders, pressure vessels and gas cylinders each leading to applicability of various Acts and compliance.

Reducing the compliance burden is critical to bringing firms within the formal sector, and achieving the goal of safe food.

What are the key slip-ups in compliance in the food sector that you have identified?
A typical company operating in food processing industry deals with a lot of industry-specific regulations. This industry is manually-intensive and typically employs a lot of contract labour owing to seasonality and cyclicality of production cycles.

A company with two offices, four manufacturing plants typically employs more than 1,000 employees and has to deal with over 70 applicable Acts with over 3,500 compliances and over a hundred licences, registrations, permissions, consent orders and approvals.

In addition, the company deals with Food Safety and Standards (Packaging and Labelling) Regulations, 2011, and is required to make various disclosures and declarations with respect to nutrition values, important ingredients, expiry dates, maximum retail price, toll-free customer care numbers, weight of product, units of weight among others. The specific compliance requirements change with categorisation of food such as dairy products, fish or meat products among others. As a company grows and adds additional products to its portfolio, it needs to approach the regulator and get separate certification for each product.

The number of compliances under the above can easily be several thousand in a year. In addition, all provisions of Factories Act, 1948, Contract Labour (Regulation and Abolition) Act, 1970, Environment Protection Act, 1986, and allied rules can make the compliance obligation extremely complicated.

Non-compliance under the Act can lead to hefty financial penalties leading up to imprisonment of directors, promoters, occupiers and other key management personnel.

The primary regulator is the FSSAI and state/UT food authorities. With this complexity at hand, firms are not sure about applicable Acts and compliances. The traditional mode of compliance management is paper-based, people-driven and manual. In this mode, considerable time is spent in getting the status of compliances within the company, there is poor awareness of risks arising out of non-compliance. They cannot keep up with the frequent changes. Often there is an issue with understanding the relevant rules, due to language barriers. This leads to sins of omission of missing filing a return and sins of commission which is filing incorrect information. Consequently, firms spend high amounts of penalties, fines and interest expenses.

Typically how much does a food company need to invest in implementing your solution?
A food company can come on-board our solution for as little as Rs 25,000 per month. There is a one-time small set up fee towards a comprehensive assessment of applicable Acts and Compliances, gap analysis, product set up and user training.

What are the key challenges faced by compliance officers in food processing industry in India?
Food processing organisations in India are facing greater scrutiny than ever. The key challenges faced by compliance officers in India are:

In-house availability of expertise:
A mid- or large-sized food processing business in India is typically structured as a group with entities, JVs, factories, corporate offices, warehouses, regional offices among others. As a result, they operate in multiple states, cities, zilla parishads and gram panchayats.

Management of all the applicable compliances need deep functional expertise across regulators and geographies. Most food processing companies do not have the required in-house expertise to deal with complexity of compliances.

Accurate list of Applicable Acts and Compliances:
The number of Acts and applicable compliances for an organisation in India range from a few hundred to a few thousand. These compliances span across seven different compliance categories, 1,000+ Acts, 58,000+ compliances and 3,000+ possible filings. Compliance officers do not have one list of all applicable compliance for their business. As a result, the list of Acts and compliances is highly dynamic and needs periodic refresh.

Fluid Regulatory Environment:
India’s regulatory environment is highly dynamic. There are over 2,500 regulatory changes in a year to various compliance requirements such as forms, dates, calculations, procedures among others leading to critical changes to compliance obligations of a company.

A number of these changes affect compliance obligations for a food processing company. Unfortunately, there are no proactive and automatic notifications from the government that compliance officer receive to quickly assess the impact of changes and make relevant corrections.

Manually Intensive Compliance Programme
Compliance officers in India lack the tools to digitise the complexity of their compliance burden. They continue to manage their compliance obligations in a highly manually intensive environment. They rely on preliminary office productivity tools such as spreadsheets, emails and phone to track their compliance status. This approach does not work well in a mid- to large-sized food processing company as the number of compliances can easily be in a few thousand.

What is the kind of manpower and financial resources that get strained to ensure compliance?
A typical food processing company will need to have a dedicated compliance officer to manage all its compliance obligations. The compliance officer typically is a senior resource from secretarial / legal team.

The compliance obligations are highly cross functional and cut across six different categories. In a typical company, at least 20-30 people from various internal departments actively contribute and participate in compliance programme. The compliance officer deals with at least 10-15 different authorities with over 300 filings a year.

Our software brings in tremendous efficiency and enhances human productivity significantly. Our clients have reported that they have reduced their missed compliances by as high has 90%. The penalties and interest expenses have reduced by 95%. Digitisation in compliances help them track over 72 parameters on smart dashboards, stay on top of all legal updates, generate reports on compliance status across all their factories, offices, warehouses and service centres. There is no need for any additional resources working on compliances. The functional teams are capable of handling it as a part of their day to day job.
 
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