Dr BK Mukhopadhyay
(The writer, a noted management economist and an international commentator on business and economic affairs, can be reached at m.bibhas@gmail.com)
If we glance back we could locate that the developing economies increased their share in manufacturing exports during the 1990s but saw little expansion in agricultural exports. They have barely been maintaining their share at around 36 per cent after losing their respective market share during the 1980s. All of their gains in agriculture during the 1990s came from expansion of their exports to other developing countries. More than 48 per cent of the world agricultural trade is still accounted for by trade between industrial countries — about the same share as that of 1980-81.
Latent talent
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 and convenience plus year-round availability. Undoubtedly, growth of output, post-harvest handling, processing, and logistical technologies - coupled with increased levels of international investment - have played a facilitating role.
Specifically, for the developing countries, trade in such 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 many developing-country suppliers have entered the field [process is on: Venezuela, Bangladesh in mango market]. In spite of this, relatively a few such countries have achieved significant, sustained success.
Problems galore
Major problems that have been telling upon on this score may be summarized: 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 works to full capacity utilization. What is more, much of the produce taken up for processing is devoid of the quality attributes or characteristics required for processing.
Due to poor infrastructure in handling, transport, marketing and processing, horticulture, as an industry, has failed to register commendable growth. Inadequate cold storage facilities, coupled with lack of proper post-harvest management practices, affects 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.
Until now, it is a fact that fruits and vegetables are generally constrained by poor price support, credit support and delivery system. Inadequate supply of power, shortage of water and lack of research and development (R&D) support exist as no less constraints. The quality of packaging also leaves much to be desired — simply not to become market-oriented - because importing countries demand specific packaging for each produce and the use of bio-degradable materials, resulting in high cost of packaging.
Furthermore, the emergence of trading blocs [in Asia, Europe and North America] and imposition of non-tariff barriers [like sanitary and phytosanitary (SPS) conditions] to imports from the developing countries, coupled with lack of awareness and knowledge about the updated measures and quality standards that are required to be adopted by the processing industry and exporters, have no doubt, affected the booster-efforts to a significant extent.
It is a fact that despite the WTO and the Agreement on Agriculture subsidies — focusing primarily on reduction of tariffs, increased market access, reduction in ‘aggregate measure of support’ in the form of subsidies - the developing countries do widely continue to be deprived of the expected gains.
Then the question surfaces from another angle: trade distortions (border protection) and domestic subsidies are the major factors that have been affecting world markets, not to speak only of developing-country consumers and producers.
Protectionist policies stand tall
Border protection is more distorting in most markets, with the notable exceptions of cotton and seafood, as pointed out realistically by Hoekman, Ng, and Olarreaga. Both domestic subsidies and border protection have contributed to making commodity markets artificially thin, with small trade volumes and a small number of agents. This, in turn is leading to high variability in prices and trade flows.
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.
It has rightly been established that domestic support and protection policies have substantial negative effects on producers in developing countries, because of the sheer size of the subsidies relative to the size of the market [cotton subsidies in the United States and EU].
So a series of practical, relevant, implementable measures in a time-bound manner is the crying need so as to register a good growth within a shorter period of time.
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 the strengthening of the agricultural sector, especially in developing countries and for which this should also remain a priority. There are a number of alternative measures that the countries could implement to achieve food security without harming their producers and without triggering even higher global prices.
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 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.
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 developed countries (LDCs) and also some 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.