How India can tap agriculture to boost trade surplus

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Published: November 6, 2017 4:58:58 AM

The new minister for commerce and industry, Suresh Prabhu, expressed his resolve to expand exports at the occasion of his anointment as the minister.

agriculture reforms, much needed agricultural reforms, how can agriculture help in boost tradeBut before elaborating on this, let us take a look at the trends in agri-trade, both exports and imports, during the Manmohan Singh (MMS) period (2004-05 to 2013-14) and the Narendra Modi (NaMo) period (2013-14 to 2016-17). (PTI)

The new minister for commerce and industry, Suresh Prabhu, expressed his resolve to expand exports at the occasion of his anointment as the minister. He highlighted agri-exports’ potential for not only for promoting overall exports, but also in augmenting farmers’ incomes and ameliorating farm distress. His objective is laudable and achievable, provided there is a paradigm shift in policymaking—from being obsessively consumer-oriented to according farmer interests a higher priority. But before elaborating on this, let us take a look at the trends in agri-trade, both exports and imports, during the Manmohan Singh (MMS) period (2004-05 to 2013-14) and the Narendra Modi (NaMo) period (2013-14 to 2016-17). A close look at these trends and their drivers can help Suresh Prabhu and his team identify agri-commodities that can help boost agri-trade surplus. In general, both agri-exports and imports have increased substantially since 2004-05. Agri-trade increased from $14 billion to $59.2 billion between 2004-05 and 2016-17. As a share of agri-GDP, it increased from 11.1% in 2004-05 to 16.7% in 2016-17, after peaking at 19.6% in 2012-13, reflecting the increasing integration of Indian agriculture with global markets. It is interesting to observe that the MMS period saw agri-trade surplus surging seven -folds, from $3.6 billion in 2004-05 to $25.4 billion in 2013-14, but then fell dramatically by two-thirds during the NaMo period, touching $8.2 billion by 2016-17. The tumbling agri-trade surplus was the result of falling exports and rising imports. Agri-exports, after peaking at $42.9 billion in 2013-14 fell to $33.7 billion in 2016-17, while imports kept rising from $17.5 billion in 2013-14 to $25.5 billion by 2016-17. Agri-exports suffered primarily from significant fall in exports of cereals (especially wheat and maize), cotton, oilseeds complex and, to some extent, bovine meat. This, in turn, was largely due to a steep fall in global prices on one hand and restrictive export policies on the other. The global prices of wheat, maize, soybean, and cotton, e.g., fell by 47%, 39%, 25% and 18%, respectively, during 2013-16. The FAO food price index fell from 209.8 in 2013 to 161.5 in 2016. Export policies for pulses, oilseeds/edible oils, several vegetables, etc, was restrictive. Nevertheless, exports of fish-seafood, and fruits-nuts-vegetables (mainly guavas/mangoes, grapes, cashew nuts, onions) have been growing steadily touching $5.8 billion and $3 billion, respectively, in 2016-17.

Agricultural imports have been rising continuously since 2004-05. Edible oils ($11.3 billion), pulses ($4.3 billion), and fruits, nuts, vegetables ($3.1 billion) together touched $18.7 billion out of a total agri-imports of $25.4 billion in 2016-17.

Where do these trends lead us to in terms of policy?

First, if we have to promote our agri-exports, we must build global value-chains for some important agri-commodities where we have a comparative advantage. Estimates of revealed comparative advantage show that India is export competitive in almost 70% of agricultural commodities, non-tradable—i.e., our prices are between import parity (cif) and export parity (fob) prices—in about 10-15%, and import competitive in the remaining 15-20% commodities. On the exports front, India is relatively competitive in cereals—especially rice and, occasionally, in wheat and maize—oilseeds, especially groundnuts, and oil meals, provided we have an open and stable export policy. We have also been the world’s second-largest exporter of cotton. But it is fish and sea-food, bovine meat, and fruits, nuts and vegetables, where we have great potential to grow. And these are the commodities to focus on for stimulating agri-exports. This would require infrastructure and institutional support—connecting export houses directly to farmer producer organisations (FPOs), sidestepping the APMC-regulated mandis, removing stocking limits, trading restrictions, etc. These are elements of structural reforms in agriculture. It is when global prices dip suddenly by 25-30%, as was the case between 2013-16, that problems arise for domestic exporters and export-oriented value-chains may need some support to push back. A special package to support value-chains at such times through infrastructural investments (in, say, assaying, grading, packaging and storing facilities), which will also create jobs in rural areas, or assistance in adhering to sanitary and phytosanitary standards (SPS), etc, would make them more resilient to future price-shocks.

Second, India needs to adopt an open, stable and reliable export policy sans flip-flops. Abrupt export bans, high minimum export prices to restrict exports, or other quantitative restrictions such as on pulses, edible oils, and, at times, even on vegetables and cereals, etc, must give way to open and free exports.

Third, on the imports front, it is the edible-oils sector, especially palm and soybean oil, where India loses the most. Palm oil is used to adulterate several other oils for the domestic market. Similarly, among pulses, primarily yellow pea is used as an adulterant in besan (chickpea flour). The import policy must, therefore, be designed such that the landed price of palm oil and yellow pea never goes much below the domestic prices of their nearest rivals, say, soybean oil and chickpea, respectively.

Lastly, liberalisation of factor markets, especially land-lease markets would also help in building more efficient and reliable export value-chains. Over-regulated land-lease markets have kept landholdings small and forced informal tenancies to flourish, rendering them incapable of mobilising large-scale capital. Long land-lease arrangements can facilitate private investments in building export-oriented global value-chains, generating rural non-farm employment and enhancing farmers’ incomes.

Now is the time for Prabhu to act—and steer a “farm-to-foreign” strategy, improve agri-trade surpluses by promoting agri-exports, and most importantly, bring more jobs and prosperity to rural areas—without losing time.

Co-authored by- Smriti Verma       

Gulati is Infosys Chair professor for agriculture, and Verma is consultant, ICRIER

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