Agri-exports: The developing world must ensure full use of immense hidden potentialities

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)

The big market globally offers ample opportunity for the developing economies to cash in on the increasing demand pattern, which, in turn, is all set to continue. Though most successful developing countries have not relied significantly on agriculture for export expansion and growth, growth in agriculture has a disproportionate effect on poverty, as more than half of the populations in developing countries reside in rural areas, and poverty is much higher in rural areas than in urban areas.

Reflecting on reality

As things stand now, around 57 percent of the developing world’s rural population lives in lower-middle-income countries, and 15 percent lives in the least-developed countries. Even though historical trends show that agriculture’s importance diminishes over time [2–3 percent in the US as compared to around 18 percent in India] and the share of population in rural areas declines, there will still be more poor people in rural areas than in cities for at least a generation.

The trends indicate that developing countries increased 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 of their gains in agriculture during the 1990s came from the expansion of their exports to other developing countries. 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.

But 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 gift of nature here that other leading producers do not have. 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 of many traditional export products. This is also a reality, simultaneously, that in spite of the fact that many developing-country suppliers have entered the field [process is on: Venezuela, Bangladesh in mango market], relatively fewer have achieved significant, sustained success, which, in turn, adequately reflects the fact that the industry is intensely competitive and rapidly changing.

Situation is becoming more complex

Realistically speaking, 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 that 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 added) more efficiently.

The steadily marching forward of ongoing preferential and regional agreements often bar low-cost producers from entering the internal markets covered by the agreements. Allocations were concentrated in a few, often high-cost countries—generally not the poorest. Examples are not difficult to locate on this score: Mauritius had around 38 percent of EU quotas, whereas Thailand, Thailand [a very low-cost producer, remained limited to a 15,000-tonne quota in the United States, and the Philippines had a quota 10 times larger.

In spite of all this, it is also a fact that emerging economies have been injecting new dynamics into global trade. The emerging economies are certainly doing a great deal by way of pushing up the global average. The region of Asia, which covers many of the emerging economies, outperformed all other regions with an increase of around 23 percent in terms of export volume.

The market is a big one and, of course, not fully saturated in many of the regions. The nature of demand for products has also been changing. If systematically tapped, the return will be a handful.

Tackling age-old problems

Major problems are required to be tackled at a quicker pace so as to ensure that future prospects are far brighter.

Problems that have been brought up on this score may be summarized as follows: 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 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 utilisation. What is more, much of the produce taken up for processing is devoid of the quality attributes or characteristics required for processing. Lack of a proper marketing strategy geared to meeting the raw material requirements of processing units and ensuring 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 a number of such economies. Infrastructure stands tall to block the prospects, particularly transportation, road networks, and freight and cargo, plus cold storage facilities, coupled with inadequate post-harvest management, which affect the produce and products. Poor and inconsistent quality of processed products and inadequate export promotion are also hindering the growth prospects [Vitamin C content in guava must be raised to expect better acceptance]. It is the residual rather than the fresh produce that is often taken up for processing, which has a bearing on quality. Till now, it has been 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 less constraints. The quality of packaging also leaves much to be desired—it is simply not market-oriented—inasmuch as importing countries demand specific packaging for each product and the use of biodegradable materials results in a high cost of packaging.

Of course, a lot depends on the efforts to forge ahead in the arena of marketing. Exports can be further boosted if post-harvest loss, better processing technologies, control of bacterial blind disease, and reduction of the cost of production are adequately taken care of and the unorganised small processors are motivated through bold government policy.

Let us keep our fingers crossed.