Targeting High Export Growth

AGRI-PRODUCTS FROM DEVELOPING COUNTRIES

Dr. B K Mukhopadhyay

(The author, a noted management economist and an international commentator on ongoing business and economic affairs, can be contacted at m.bibhas@gmail.com)

It is heartening to note that the Central government has unveiled an ambitious agriculture export policy that seeks to double Agri exports to $60 billion by 2022 and do away with arbitrary curbs on exports. Though the policy found little support from experts who termed the target ‘highly ambitious’, given how exports had fallen from nearly $40 billion five years back to $36 billion in 2017-18, yet the move is in right direction in as much as its very purpose is to push India into the list of the top 10 agri export nations. The policy ties in logistics support, a better trade regime and states-led product development to connect farmers to global markets. Each state will have a designated department for the promotion of agricultural exports, apart from cluster-based development for specific commodities. Several seaports have been identified to serve as gateways for specific Agri exports.

It is, however, a fact that despite India occupying pole position in the global trade of these products, its total Agri export basket still accounts for only a little over 2 percent of world Agri trade, estimated at a massive $1.37 trillion. It is also a fact that achieving an agriculture export target of $60 billion by 2022 looks ambitious, given the current global market conditions, more so, because India’s export basket largely comprises meat, marine products, and basmati rice whose demand in the world market is inelastic, as rightly pointed out by Gokul Patnaik, former Chairman of Agriculture and Processed Food Products Export Development Authority.

The scenario:

Emerging economies have already injected new dynamics into global trade and they 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, has outperformed all other regions with an increase in terms of export volume.

Current trends indicate that not only India but developing countries overall 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 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 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.

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, post-harvest 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. It 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.

What is more, 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 etc) more efficiently.

Systematically tackling problems:

A number of major problems 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:

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.

Towards win-win situation:

Whatever be so, 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. 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 time-bound manner, is the crying need so as to register good growth within a shorter period of time.