Doubling Indian Agri exports by 2022: Challenges and choices

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)

Dr. Boidurjo Rick Mukhopadhyay

(The author, international award-winning development and management economist, formerly a Gold Medalist in Economics at Gauhati University)

The target set by the Government of India is a good one – doubling agri-exports by 2022 – matching well with the other target of doubling farmers' income by 2022. Statistics indicate that not only India but the developing countries also increased their share in manufacturing exports during the 1990s but saw little expansion in agricultural exports, barely maintaining their share of around 36 per cent 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 the global trade in agri-commodities till now hovered around 2.27% in 2017! More than 48 per cent of world agricultural trade is still accounted for by trade between industrial countries — about the same share as in 1980-81.

Needless to repeat that the global market for these products is a tremendous one and it goes without saying that if systematically tapped, there lies immense scope ahead. This is in particular for the least developing economies as the latter virtually depend on a handful of agri-commodities to earn foreign exchange.

Surely, both the absolute advantages as well as comparative advantages must be fully reaped. For example, India produces grapes twice a year – a rare advantage and gift of nature which other leading producers do not have. Especially, trade-in fruit and vegetable products have been among the most dynamic areas of international agricultural trade, stimulated by rising incomes and growing consumer interest in product variety, freshness, convenience, plus 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 have been attractive in the face of highly volatile or declining long-term trends in the prices for many traditional export products. This is also a fact simultaneously that even though many developing country suppliers have entered the field (e.g., Venezuela, Bangladesh in the mango market), relatively few have achieved significant, sustained success, which, in turn adequately reflects the fact that the industry is intensely competitive plus rapidly changing.

A. International Agri Marketing Is Complex

These commodity markets de facto exhibit a complex political economy – 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 strategic policy options is not difficult. However, what is pertinent on this score is the fact that the feasibility of reform depends on the power of vested interests, and equally the ability of governments to identify trade-offs 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, future-facing preferential and regional agreements often bar low-cost producers from entering the internal markets covered by agreements. Quota allocations are concentrated in a few, often high-cost countries, which are generally not the poorest. Although in the past 5 years, EU reforms have abolished quite a range of such quotas which positively restructured the way certain countries would do international business. For example, Mauritius has now immediate quota-free and duty-free access to the European Union market. As a result, the Republic of Mauritius has decided to liberalise 96 % of its trade with the EU by 2022.

Over the past decade, emerging economies have certainly 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 many of the emerging economies, had outperformed all other regions with an increase in terms of agri export volume. But several major problems are required to be tackled at a quicker pace to ensure that the prospects are far brighter.

B Recognising the Challenges

Firstly, the 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 product as compared to the very high levels obtained in the advanced countries affect processing and none of the processing units works to full capacity utilization.

Secondly, more of the produce taken up for processing is devoid of the quality attributes or characteristics required for processing. Poor and inconsistent quality of processed products and inadequate export promotion are also hindering the growth prospects. It is the residual rather than the fresh produce that is often taken up for processing, which has a bearing on quality.

Thirdly, the lack of a proper marketing strategy to meet the raw material requirement of processing units and ensuring a sustainable export market for the processed products has been keenly experienced.

Fourthly and critically, 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 and freight and cargo facilities. In addition, the freight rates in India are reported to be higher than those prevalent in some other countries, the very fact that does very little to improve our competitiveness, cold storage facilities, etc. coupled with inadequate post-harvest management which affect the produce and products.

Ocean freight rates, for example, have moved up by 50-60 per cent for both container and breakbulk cargo, due to which the share of freight costs in the total product cost of rice has increased significantly. The Indian rice continues to have higher demand while the supply issues are seen continuing in the other origins. At the same time, if we look at Myanmar where despite achieving improved crops, exporters are seen facing challenges due to the prevailing political situation. However, a weaker Indian currency is helping the country's exporters.

Fifthly, it is a fact that fruits and vegetables are generally constrained by poor price support, credit support and delivery system. Inadequate supply of power, water and research and development support exists as no fewer constraints. The quality of packaging also leaves much to be desired – 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.

C. Trade Distortions and Climate Change

Further questions surface from other angles: trade distortions (border protection) and domestic subsidies – the major factors that have been affecting world markets. It has been the experience that large trade distortions impede trade flows, depress world prices, and discourage market entry or delay exit by non-competitive producers.

Climatic factors must not be lost sight of as well. The high risk for water-related yield loss in rain-fed agriculture makes farmers avert risk, which in turn, influences their perceptions on investments in other production factors such as labour, improved seed and fertilizers.

Because of the risk associated with climate variability, smallholder farmers are generally and rationally keen to start by reducing the risk of crop failure due to dry spells and drought before they consider making investments in soil fertility, improved crop varieties and other yield-enhancing inputs.

This, in turn, together with the fluctuations in yields, makes it hard for resource-poor men and women in semiarid areas to respond effectively to opportunities made possible by emerging markets, trade and globalization. Rainfall micro-insurance, on this score, can increase agricultural production.

Simultaneously, this is also a fact that the dramatic commodity price increases seen in 2007 and 2008 triggered a record number of export restrictions, in particular for rice and wheat, which led, in turn, to even greater price hikes, and hindered sufficient and timely procurement of much-needed food aid.

Export restrictions (bans, quotas or taxes) are often imposed by governments as a means to promote domestic food security. Although they may bring some short-term relief to domestic consumers, still their overall impact on the domestic economy as well as on the rest of the world is assessed to be negative. The expected gains from export restrictions are often not realized in practice.

D. Alternative measures to safeguard Food Security

A crucial element in supply augmentation, which requires that strengthening the agricultural sector, especially in developing countries for which this should also remain a priority. There are several alternative measures countries could implement to achieve food security without harming their producers and without triggering even higher global prices. Farmers in developing countries could leverage agricultural co-operatives, which could then sell their shares to both domestic and foreign citizens and institutions. The generated funds could be used to improve irrigation and storage facilities as well as undertake agronomic research. This should help to increase both country-specific and world supply and do away with export restrictions.

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