Doubling agri-exports by 2022 - Difficult but not impossible

Dr BK Mukhopadhyay *

The target set by the Government of India is a good one – doubling agri-exports by 2022 – matching well with thje target of doubling farmers’ income by 2022. If it really happens everyone will be glad - the same is not impossible but call for steps that matches well on the Indian soil. Obvious enough tinkering around the traditional path cannot lead to the result so desired! India has to walk extra miles to recah such a target.

Reflecting The Reality : Current trends 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 expansion of their exports to other developing countries.

Share of India’s agri-exports in the global trade in agri-commodities till now hovers around 1 per cent! 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, 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 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 has 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 has 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 in spite of the fact that many developing country suppliers have entered the field (process is on: Venezuela, Bangladesh in 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.

International Marketing Is Steadily Turning To Be More And More 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 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 etcd ) more efficiently.

The steadily marching, forward going 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. (For instance, Mauritius has 38 per cent 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.)

Mild Heat Is On

In spite of all these, this is a fact that emerging economies had 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 export volume. But there are a number of major problems which are required to be tackled at a quicker pace so as to ensure that the future prospects are far brighter. Let us have a close look at that.

Major Problems Loom Large : Though the latest trends indicate increasing demand pattern in the agriculture sector major problems loom large: 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 utilization.

What is 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 requirement 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 economies like India.

Infrastructure stands tall to block the prospects – particularly transportation, road networks and freight and cargo facilities (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.

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.

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 exist as no less constraints. The quality of packaging also leaves much to be desired – simply not market-oriented – as importing countries demand specific packaging for each produce and the use of biodegradable materials resulting in 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 the experience that large trade distortions impede trade flows, depress world prices, and discourage market entry or delay exit by noncompetitive 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 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.

Let It Happen: That is why alternative measures are required to be taken also by the governments to safeguard food security. A crucial element is supply augmentation, which requires that 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.

Farmers in developing countries could form agricultural cooperatives, 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

Whatever is: the world has to craft improved trade disciplines on agriculturall 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 unreliability of supplies. As the 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 opening. 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 include 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 a good growth within a shorter period of time.