Growth slows in H1FY18, MSP hike could hit export prospects further

By: | Published: November 8, 2018 12:51 AM

Farm exports, which had seen a big spike and showed potential of further acceleration during the UPA-2 government’s period, have lost some of that momentum under NDA’s watch.

In volume term, 26 of the top 40 items that make up for over 90% of total agricultural shipments registered a rise in the April-September period, against 27 a year before.

Farm exports, which had seen a big spike and showed potential of further acceleration during the UPA-2 government’s period, have lost some of that momentum under NDA’s watch. While the shipments were hit during the initial years of NDA partly due to subdued world trade, the latest trend is not encouraging either despite global commerce improving.

After a 15% rise last fiscal, growth in India’s farm export value slowed down to just over 2% in the first half of 2018-19, as demand for a host of items—including marine products and non-basmati rice — remained subdued, showed official data.

Exports of farm and allied products touched $18.6 billion in H1FY19, against $18.2 billion a year before, according to the data by the agrixchange portal under the Agricultural and Processed Food Products Export Development Authority (APEDA). The data capture over 95% of the total exports in this segment. The slowdown could worsen further once the full impact of the government’s sharp hike of up to 52% in minimum support prices (MSPs) of various kharif crops — aimed at ensuring farmers at least a 50% profit over costs — are felt. That will make local products more uncompetitive in the global market. Only last fiscal, the farm exports had reversed a three-year slide to record a rise.

In volume term, 26 of the top 40 items that make up for over 90% of total agricultural shipments registered a rise in the April-September period, against 27 a year before. While the rise in the outbound shipments of farm items exceeded a 10% expansion in the overall merchandise exports in FY18, it trails a 12.5% increase in goods exports in the first half of this fiscal.

The marine products segment, which was a prime driver of farm export growth in recent years, dropped 7% to $3.47 billion in H1. While basmati rice exports rose 6% to $2.12 billion, those of non-basmati declined 7.6% to $1.56 billion. Buffalo meat — the third-largest farm item that had registered a near 3% rise in value in FY18, despite a crackdown on illegal abattoirs in Uttar Pradesh last year — witnessed only a slight increase in export value to $1.89 billion in H1FY18.

Once touted to have the potential to be a long-term driver of India’s goods exports, the agriculture and allied sector was periodically bugged down by elevated domestic prices in times of a global commodity crash — caused by plentiful supplies and a demand slowdown — and periodic curbs on exports of certain items.

After hitting a record $42.8 billion in 2013-14, partly aided by elevated global commodity prices, farm exports declined to $32.1 billion in 2015-16 and $33.4 billion 2016-17, and the net trade surplus, too, declined to $9.5 billion in 2015-16 and $7.8 billion in 2016-17.

While the long-term potential is immense, high cost of production (especially in years of deficient monsoon), elevated levels of minimum support prices fixed by the government, lack of market reforms (removal of archaic APMC act and the creation of efficient alternative markets), low mechanisation due to small land holdings and less financial muscle of farmers have often undermined India’s competitiveness in farm exports in times of a global economic slowdown. Consequently, prices of commodities ranging from cereals to dairy products and oilmeals have often ruled higher than the global levels.

On top of these, frequent restrictions on exports of farm items in times of a spike in domestic prices have stoked considerable uncertainties in agri trade, although such fluctuations in trade policies have substantially eased in recent years. The government also plans to do away with the habit of restricting exports of most of the items through a proposed policy, which will soon be taken up by the Cabinet. However, analysts have argued that to best tap India’s farm export potential, the outbound shipment should be kept free for all the time.

This is all the more imperative when the government has announced a 50% premium to farmers over their cost of production, which threatens to inflate domestic prices of several commodities and hurt exports. A predictable export regime will provide some cushion in that case.

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