India industry fears investment backlash over colas

MUMBAI, Aug 14 (Reuters) - Leading Indian industry lobby groups have stepped up calls for stricter food safety standards, while worrying that moves to ban sales of soft drinks after a report on pesticide content could damage overseas investment.

Six state governments stopped the sale of aerated beverages made by Coca-Cola and PepsiCo at or near state-run schools, colleges and hospitals last week.

Another, the southern state of Kerala, has gone a step further, stopping all production and distribution of the drinks.

Both companies have defended the safety of their products.

Indian newspapers on Monday carried front-page stories on local schools and colleges banning colas and the possible impact on U.S. investment in India.

"Investors have to see the bigger picture," The Business Standard paper quoted Kiran Pasricha, the U.S. head of the Confederation of Indian Industry, as saying with regard to worries about possible effects on investment.

"We hope that better sense will prevail," Pasricha said.

The Associated Chambers of Commerce and Industry of India said the government should issue standards for all food products and "tackle the bigger problem" of contamination of ground water.

The bans were prompted by a report from the Delhi-based Centre for Science and Environment (CSE), a non-profit public interest organisation, which said pesticide residues had been found in 57 samples of the two firms' products.

The Hindustan Times paper quoted U.S. Undersecretary for International Trade Franklin Lavin as saying the bans were a setback for the Indian economy.

"At a time when India is working hard to attract and retain foreign investment, it would be unfortunate if the discussion were dominated by those who don't want to treat foreign companies fairly," he was quoted as saying.

Lavin is scheduled to lead a U.S. trade mission to India later in the year.

LABORATORY TESTS

Coke and Pepsi have published newspaper advertisements saying that pesticide levels in their products are within permissible levels, and less than those found in other foods, such as tea and fruit.

In a statement issued at the weekend, Coca-Cola said it had commissioned independent laboratory tests which confirmed its soft drinks in India met "the stringent purity criteria set by the European Union for pesticides in bottled water".

"There is no issue with the quality and purity of our products," Rick Frazier, vice president of technical stewardship, said in the statement.

The UK's Central Science Laboratory (CSL), hired by Coca-Cola to carry out the tests, said in a New Delhi news conference on Monday that there were holes in the CSE study and that not enough data had been published to back up its claims.

However, the CSL, a British government agency that also takes commercial contracts, acknowledged that its own data would not be accepted by Britain's Food Standards Agency as the samples tested at its UK laboratory had been directly supplied by Coca-Cola.

Coke said the samples were taken from Indian plants.

India's CSE had carried out a similar study in 2003, which was endorsed by India's parliament.

The CSE, which has said pesticides were also present in other foods and drinks, has said its fight was not with the beverage giants but with the Indian government, for dragging its feet despite vows to introduce legal limits for toxins in soft drinks.

India's soft drink market, worth 60 billion rupees ($1.3 billion) a year and the equivalent of 12 billion eight-ounce bottles, has one of the lowest consumption rates in the world. Coke and Pepsi control nearly the entire market.

Coke has been dogged by weak growth in the Philippines and India, and also faced the ire of students at New York University and the University of Michigan, who banned the Atlanta-based firm's beverages from their campuses over its labour practices in Colombia and environmental concerns in India.

Environmental groups have accused the company of depleting water tables and worsening drought conditions in some areas in India where its bottling plants are located. ($1=46.6 rupees) (Additional reporting by Jonathan Allen in New Delhi)

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