WHAT ABOUT EXPORT of Indian Farm products?

India’s export of agriculture and processed food products had been enjoying strong growth for the last five fiscals. However, it declined by 9.8 per cent in FY 2015. Is India being denied market access in the name of health and safety regulations? The latest example is mandatory inspection and audit of imported agricultural products. Are prohibitive import duties and high subsidies — a key feature of first world’s farm policy — constraining India’s farm exports ? Do we need to know the other contributing factors behind the poor performance of farm exports ? Over the last few quarters, export price of basmati rice has declined from $1,295/tonne to as low as $1,050/tonne, leading to low realisation from its exports. Export data compiled by Agricultural Products Exports Development Authority shows that export of basmati rice declined in both volume (1.6 per cent) and value terms (7.15 per cent) in FY 2015 mainly because of reduced demand from Iran and the US. Relative appreciation of the rupee against the dollar vis-à-vis Brazilian real has eroded India’s price competitiveness in soyabean, sugar and buffalo meat exports.
Increased shale gas production in the US has led to lower demand for crude oil. Low priced crude in turn has reduced the demand for bio-fuel, especially ethanol, thereby reducing the demand for soya, corn, mustard, sunflower, palm, sugarcane and sugar beet. China has cut its cotton import quota just enough to meet WTO obligations. It is reported to have imported 30 per cent less cotton in the first half of 2015. China also imposes an import duty of 40 per cent, and deprives India access to a large cotton consuming market. In my very personal and biased opinion, all steps of China are against India. Recent de-stocking and curbs on imports of agricultural commodities in China will keep international prices depressed. That will translate into lower demand for cotton exporters like India.
India’s farm exports also face prohibitive import duties in overseas markets. For example, dairy products attract peak import duties of 511 per cent in the EU, 93 per cent in the US, and 692 per cent in Japan. Fruit and vegetables, and oilseeds attract equally high import duties in the EU, Japan and the US, with Japan being the most protective. Though there is a free trade agreement between India and Japan, most farm products have escaped any duty reduction commitments. India’s farm exports also have to compete with highly subsidised farm products supplied by other countries. Although India has been accused of being overly protectionist about agricultural and food products, it is China, Japan and the US which are the top farm subsidisers. According to the OECD, China spent over $165 billion in direct and indirect farm subsidies, followed by Japan at $65 billion (50 per cent of its agriculture GDP compared to less than 10 per cent in India) and the US at $ 30 billion. Besides, nearly 70 per cent of Chinese subsidies are trade distorting.
India’s farm exports also have to face a series of non-tariff barriers in top consuming markets – for example, a ban on import of mangoes by EU that was lifted in January 2015. Other examples of market denials are ban on rice imports by Iran and green pepper by Saudi Arabia. Besides, Vietnam refuses to allow Indian peanuts. China does not buy non-basmati rice from India but sources the same from Pakistan as well as Cambodia, Myanmar, Vietnam and Thailand. The proposed US legislation requiring agriculture imports to be mandatorily inspected and audited by USFDA will increase the cost of compliance and hurt India’s farm exports. Instead of global demand and supply factors, India’s farmers are unfortunately guided by minimum support and procurement prices fixed arbitrarily by government.
Keeping domestic prices of farm products artificially high disincentivises export. Minimum support and procurement prices also over-incentivise cultivation of cereals vis-à-vis commercial and horticultural crops. This affects India’s ability to capture export markets. Even Bangladesh and Pakistan are now sourcing oil-meals from Latin America rather than India. Like any other merchandise export, India’s farm produce suffers from poor customs and port infrastructure, and high logistics cost that cut into the exporters’ margins. Exports of many agriculture commodities, sugar for instance, are regulated by arbitrary quota fixation in India. Such executive actions make India an unreliable supplier. That in turn leads to low net realisation from export. Then, there are quality related issues with instances of pesticides often being found above permissible limits, leading to rejection of export consignments. The cultivation of genetically modified (GM) crops is quite common in the US and Latin American countries like Brazil. India’s hesitation on whether to allow cultivation of GM crops or not affects its ability to capture global market share. China annually imports over 70 million tonnes of GM soybeans, but India can’t supply any of it. Strangely, India does allow import of GM soyaoil and cottonseed oil. Given the numerous tariff and non-tariff barriers that its farm exports face in overseas markets, India needs to devise an effective strategy to counter them. India will have to take up the issues of farm subsidies, market denials and high import duties at all bilateral (FTAs), regional (e.g. RCEP) and multilateral (WTO) trade forums if it is serious about pushing its farm exports.
Among internal actions needed are long term measures to tackle the issues of low productivity, over dependency on monsoon, and lack of post harvest infrastructure that lower the net supply of agriculture commodities and leads to knee jerk reactions in the form of export bans. It’s time India stopped over- promotion of cereals, and let demand and supply forces guide production and trade decisions. Imposing export bans deprives farmers of getting the best prices for their produce. India needs to remove quantitative restrictions on exports for improving its image as a supplier. To deal with temporary shortage of specific agriculture commodities, export duties (that are less trade distortive than export quotas) should be used. It’s time to consider cultivation of GM crops for capturing a bigger share in global farm trade.
Thanq Ms Prerna Sharma Vice-President and Head, Agriculture, Food and Retail at Biznomics Consulting for all inputs.

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India’s export of agriculture and processed food products had been enjoying strong growth for the last five fiscals. However, it declined by 9.8 per cent in FY 2015. Is India being denied market access in the name of health and safety regulations? The latest example is mandatory inspection and audit of imported agricultural products. Are prohibitive import duties and high subsidies — a key feature of first world’s farm policy — constraining India’s farm exports ? Do we need to know the other contributing factors behind the poor performance of farm exports ? Over the last few quarters, export price of basmati rice has declined from $1,295/tonne to as low as $1,050/tonne, leading to low realisation from its exports. Export data compiled by Agricultural Products Exports Development Authority shows that export of basmati rice declined in both volume (1.6 per cent) and value terms (7.15 per cent) in FY 2015 mainly because of reduced demand from Iran and the US. Relative appreciation of the rupee against the dollar vis-à-vis Brazilian real has eroded India’s price competitiveness in soyabean, sugar and buffalo meat exports.
Increased shale gas production in the US has led to lower demand for crude oil. Low priced crude in turn has reduced the demand for bio-fuel, especially ethanol, thereby reducing the demand for soya, corn, mustard, sunflower, palm, sugarcane and sugar beet. China has cut its cotton import quota just enough to meet WTO obligations. It is reported to have imported 30 per cent less cotton in the first half of 2015. China also imposes an import duty of 40 per cent, and deprives India access to a large cotton consuming market. In my very personal and biased opinion, all steps of China are against India. Recent de-stocking and curbs on imports of agricultural commodities in China will keep international prices depressed. That will translate into lower demand for cotton exporters like India.
India’s farm exports also face prohibitive import duties in overseas markets. For example, dairy products attract peak import duties of 511 per cent in the EU, 93 per cent in the US, and 692 per cent in Japan. Fruit and vegetables, and oilseeds attract equally high import duties in the EU, Japan and the US, with Japan being the most protective. Though there is a free trade agreement between India and Japan, most farm products have escaped any duty reduction commitments. India’s farm exports also have to compete with highly subsidised farm products supplied by other countries. Although India has been accused of being overly protectionist about agricultural and food products, it is China, Japan and the US which are the top farm subsidisers. According to the OECD, China spent over $165 billion in direct and indirect farm subsidies, followed by Japan at $65 billion (50 per cent of its agriculture GDP compared to less than 10 per cent in India) and the US at $ 30 billion. Besides, nearly 70 per cent of Chinese subsidies are trade distorting.
India’s farm exports also have to face a series of non-tariff barriers in top consuming markets – for example, a ban on import of mangoes by EU that was lifted in January 2015. Other examples of market denials are ban on rice imports by Iran and green pepper by Saudi Arabia. Besides, Vietnam refuses to allow Indian peanuts. China does not buy non-basmati rice from India but sources the same from Pakistan as well as Cambodia, Myanmar, Vietnam and Thailand. The proposed US legislation requiring agriculture imports to be mandatorily inspected and audited by USFDA will increase the cost of compliance and hurt India’s farm exports. Instead of global demand and supply factors, India’s farmers are unfortunately guided by minimum support and procurement prices fixed arbitrarily by government.
Keeping domestic prices of farm products artificially high disincentivises export. Minimum support and procurement prices also over-incentivise cultivation of cereals vis-à-vis commercial and horticultural crops. This affects India’s ability to capture export markets. Even Bangladesh and Pakistan are now sourcing oil-meals from Latin America rather than India. Like any other merchandise export, India’s farm produce suffers from poor customs and port infrastructure, and high logistics cost that cut into the exporters’ margins. Exports of many agriculture commodities, sugar for instance, are regulated by arbitrary quota fixation in India. Such executive actions make India an unreliable supplier. That in turn leads to low net realisation from export. Then, there are quality related issues with instances of pesticides often being found above permissible limits, leading to rejection of export consignments. The cultivation of genetically modified (GM) crops is quite common in the US and Latin American countries like Brazil. India’s hesitation on whether to allow cultivation of GM crops or not affects its ability to capture global market share. China annually imports over 70 million tonnes of GM soybeans, but India can’t supply any of it. Strangely, India does allow import of GM soyaoil and cottonseed oil. Given the numerous tariff and non-tariff barriers that its farm exports face in overseas markets, India needs to devise an effective strategy to counter them. India will have to take up the issues of farm subsidies, market denials and high import duties at all bilateral (FTAs), regional (e.g. RCEP) and multilateral (WTO) trade forums if it is serious about pushing its farm exports.
Among internal actions needed are long term measures to tackle the issues of low productivity, over dependency on monsoon, and lack of post harvest infrastructure that lower the net supply of agriculture commodities and leads to knee jerk reactions in the form of export bans. It’s time India stopped over- promotion of cereals, and let demand and supply forces guide production and trade decisions. Imposing export bans deprives farmers of getting the best prices for their produce. India needs to remove quantitative restrictions on exports for improving its image as a supplier. To deal with temporary shortage of specific agriculture commodities, export duties (that are less trade distortive than export quotas) should be used. It’s time to consider cultivation of GM crops for capturing a bigger share in global farm trade.
Thanq Ms Prerna Sharma Vice-President and Head, Agriculture, Food and Retail at Biznomics Consulting for all inputs.

Author: mahesh3006

A retired development banker with strong bias towards rural development through microcredit