Agri-exports: Systematic planning can yield better results

Dr B K Mukhopadhyay

(The author is a Professor of Management and Economics, formerly at IIBM (RBI) Guwahati. He can be contacted at m.bibhas@gmail.com)

Current trends indicate that not only India but also the developing countries in creased their share in manufacturing exports during the 1990s but saw little expansion in agricultural exports, barely maintaining their share of around 36 percent after losing market shares during the 1980s. All their gains in agriculture during the 1990s came from the expansion of their exports to other developing countries.

Needless to say, the global market for these products is a tremendous one, and it goes without saying that if systematically tapped, there lies immense scope ahead, especially for the least developing economies, as the latter virtually depend on a handful of agri-commodities to earn foreign exchange. Of course, the absolute advantages as well as the comparative advantages must be fully reaped. For example, India produces grapes twice a year—a rare advantage and a gift of nature that other leading producers do not have.

The share of India’s agri-exports in global trade in agri-commodities till now hovers around 1 percent! More than 48 percent of world agricultural trade is still accounted for by trade between industrial countries—about the same share as in 1980–81.

Trade in fruit and vegetable products has been among the most dynamic areas of international agricultural trade, stimulated by rising incomes and growing consumer interest in product variety, freshness, convenience, and year-round availability. Undoubtedly, advances in production, postharvest handling, processing, and logistical technologies—coupled with increased levels of international investment—have played a facilitating role. Specifically, for developing countries, trade in these products has been attractive in the face of highly volatile or declining long–term trends in the prices for many traditional export products. Simultaneously this is also a fact that in spite of the fact that many developing country suppliers have entered the field (process is on in Venezuela and Bangladesh in the mango market), relatively few have achieved significant or sustained success, which, in turn, adequately reflects the fact that the industry is intensely competitive and rapidly changing.

What is more, these commodity markets de facto exhibit a complex political economy, both domestically and internationally. Undoubtedly, the arcane nature of many policy interventions in these commodity markets and the many heterogeneous interests exacerbate this complexity. It must be agreed upon that identifying superior policy options is not difficult, but what is pertinent on this score is the fact that the feasibility of reform depends on the power of vested interests and the ability of governments to identify tradeoffs and possible linkages that will allow them to pursue multiple goals (food security, income transfers, expansion of domestic value addition, etc.) more efficiently.

The steadily marching, forward-going preferential and regional agreements often bar low-cost producers from entering the internal markets covered by the agreements. Quota allocations are concentrated in a few, often high-cost countries, which are generally not the poorest. (For instance, Mauritius has around 38 percent of EU quotas. Thailand, a very low–cost producer, is limited to a 15,000 ton quota in the United States, whereas the Philippines has a quota 10 times larger that often goes unfilled.)

In spite of all these, it is a fact that emerging economies have injected new dynamics into global trade, and the emerging economies are certainly doing a great deal by way of pushing up the global average. The region of Asia, which covers a number of emerging economies, had outperformed all other regions with an increase in terms of export volume.

But there are a number of major problems that need to be tackled at a quicker pace so as to ensure that future prospects are far brighter. Let us have a close look at that.

Though the latest trends indicate an increasing demand pattern in the agriculture sector, major problems loom large: a lack of a broad raw material base in terms of the kinds and varieties of fruits and vegetables suitable in all respects for processing and their availability in commercial quantities at prices that are economical to the processing industry. Invariably, the cost of the raw material is high; low productivity and poor quality of the produce as compared to the very high levels obtained in the advanced countries affect processing, and none of the processing units work to full capacity utilization. More of the produce taken up for processing is devoid of the quality attributes or characteristics required for processing. Lack of a proper marketing strategy to meet the raw material requirements of processing units and ensure a sustainable export market for the processed products has been keenly experienced.

Due to poor infrastructure in handling, transport, marketing, and processing, horticulture as an industry has failed to register commendable growth in economies like India. Infrastructure stands tall to block the prospects, particularly transportation, road networks, freight and cargo facilities (the freight rates in India are reported to be higher than those prevalent in some other countries, which does very little to improve our competitiveness), cold storage facilities, etc., coupled with inadequate post-harvest management, which affects the produce and products. Poor and inconsistent quality of processed products and inadequate export promotion are also hindering growth prospects. It is the residual rather than the fresh produce that is often taken up for processing, which has a bearing on quality.

It is a fact that fruits and vegetables are generally constrained by poor price support, credit support, and delivery systems. Inadequate supply of power, water, and research and development support exist as no lesser constraints. The quality of packaging also leaves much to be desired—it is simply not market-oriented—as importing countries demand specific packaging for each product and the use of biodegradable materials, resulting in a high cost of packaging.

Then the question surfaces from another angle: trade distortions (border protection) and domestic subsidies—the major factors that have been affecting world markets. It has been my experience that large trade distortions impede trade flows, depress world prices, and discourage market entry or delay exit by noncompetitive producers.

That is why alternative measures are also required to be taken by  governments to safeguard food security. A crucial element is supply augmentation, which requires strengthening the agricultural sector, especially in developing countries, for which this should also remain a priority. There are a number of alternative measures countries could implement to achieve food security without harming their producers and without triggering even higher global prices.

Whatever it is, the world has to craft improved trade disciplines on agricultural export restrictions since existing agricultural trade rules are primarily focused on the problems of exporters (viz., high border protection, domestic support, and export subsidies) and have practically ignored the importers’ main problem, which is the unreliability of supplies. As things stand now, given the uncertain fate of the Doha Development Round, it is better not to pin much hope in the short run on the agricultural negotiations. Greater supply assurances could motivate import-sensitive countries to undertake greater market access openings. The idea of a separable “exporters’ code” or “food security code,” which could be pursued in case of a long term suspension of the Doha Round, that includes self-restraint on both export subsidies and export restrictions, may be welcome.

So a series of practical, relevant steps, implementable in a time-bound manner, is the crying need so as to register good growth within a shorter period of time.