AGRICULTURE EXPORTS

AGRICULTURE EXPORTS

India ranks second in global agriculture production, but its share in global agricultural exports is only 2.4 percent, placing it eighth in the world (WTO’s Trade Statistical Review, 2022).

In terms of domestic contributions, agricultural exports make up less than 2 percent of India’s GDP, which is lower compared to other developing agrarian countries.

What is the Need for an Agri-Export Policy?

1) Economic Impact: In recent years, the agricultural export sector has accounted for a substantial portion of India's total exports. For example, in the fiscal year 2022-2023, India's agricultural and processed food products export reached approximately USD 53 billion.

2) Food Security: India supports a substantial 17.84% of the world's population but has limited resources, with only 2.4% of the world's land and 4% of its water resources.

A well-planned export policy can generate additional revenue that can be reinvested in enhancing food security and increasing the income of farmers.

3) Controlling Food Inflation: Agricultural exports can help stabilize domestic prices, especially during years of bumper harvests. This price stability can benefit both consumers and producers.

4) Employment Generation: As per the NSSO’s Periodic Labour Force Survey for 2021-22,the agricultural sector is the largest employer in India, with around 45% of the workforce engaged in agriculture. Promoting agricultural exports can help create more job opportunities, especially in rural areas, where livelihoods are closely tied to farming.

5) Balance of Payments (BOP): In recent years, agricultural exports have contributed significantly to India's foreign exchange reserves. It helps to offset the trade deficit and maintain a stable currency.

6) Crop Diversity: India is one of the world's largest producers of various agricultural commodities, including rice , wheat, spices, and horticultural products. These commodities have substantial export potential, and a well-structured export policy can harness this potential.

7) Trade Relationships: India's agricultural exports are important for building and strengthening trade relationships with various countries. For instance, India's export of agricultural products to countries like the United States, Saudi Arabia, and the United Arab Emirates has steadily increased.

8) Structural Challenges: The policy can address challenges in exporting agricultural products from India, such as low farm productivity, poor infrastructure, global price volatility, and market access.

Factors Affecting Indian Exports:

Indian exports, a crucial driver of economic growth and job creation, are influenced by a complex interplay of factors. These factors can be categorized into:

A. Internal Factors:

1. Domestic Economic Conditions:

• Inflation: High inflation can erode competitiveness by making Indian goods more expensive in international markets.
• Interest Rates: High interest rates can make it difficult for exporters to access credit, hindering investment and expansion.
• Currency Fluctuations: A depreciating rupee can make Indian exports more competitive but can also increase the cost of imported raw materials.
  • Example: During the 2008 financial crisis, the rupee depreciated significantly, boosting exports. However, the depreciation also increased the cost of imported oil, impacting inflation.
    
    

2. Infrastructure and Logistics:

• Ports and Transportation: Efficient port infrastructure and reliable transportation networks are crucial for timely and cost-effective delivery of goods to international markets.
• Power Supply: Consistent and affordable power supply is vital for manufacturing and production, ensuring export competitiveness.
• Warehousing and Cold Storage: Adequate warehousing and cold storage facilities are essential for perishable goods and maintaining product quality.
  • Example: Delays at congested ports can lead to increased transportation costs and delays in delivery, impacting export competitiveness.
    

3. Production and Manufacturing:

• Technology and Innovation: Access to modern technology, automation, and skilled labor force allows manufacturers to produce high-quality, competitive goods.
• Labor Costs: High labor costs can make Indian exports less competitive compared to other countries.
• Raw Material Availability and Prices: Availability of quality raw materials at competitive prices is crucial for export-oriented industries.
  • Example: The availability of skilled labor in the IT sector has contributed significantly to India's export success in software and services.
    

4. Government Policies:

• Trade Policies: Liberal trade policies, including free trade agreements (FTAs) and removal of non-tariff barriers, can boost exports.
• Tax Policies: Export incentives, tax breaks, and simplified procedures can encourage businesses to export.
• Export Promotion: Government programs and initiatives aimed at promoting exports can provide support and guidance to exporters.
  • Example: The "Make in India" initiative aims to promote manufacturing in India and increase exports by attracting foreign investment and improving infrastructure.
    
    

B. External Factors:

1. Global Economic Conditions:

• Recessions and Financial Crises: Global economic downturns can significantly reduce demand for Indian exports, leading to a decline in exports.
• Competition: Competition from other exporting nations can impact India's share in the global market.
  • Example: The 2008 global financial crisis led to a sharp decline in global demand, impacting Indian exports significantly.
    
    

2. Trade Policies of Importing Countries:

• Tariffs and Non-Tariff Barriers: Import tariffs and non-tariff barriers imposed by importing countries can make Indian goods less competitive.
• Trade Agreements: Free trade agreements (FTAs) with importing countries can reduce trade barriers and boost exports.
  • Example: The FTA between India and ASEAN has facilitated increased trade and investment between the two regions.

3. Geopolitical Factors:

• Political Instability: Political instability in importing countries can disrupt trade and create uncertainty for exporters.
• Wars and Conflicts: Wars and conflicts can disrupt supply chains, create trade barriers, and reduce global demand, impacting Indian exports.
  • Example: The ongoing conflict in Ukraine has disrupted global supply chains for wheat and other commodities, impacting Indian exports.
  • Red Sea crisis which significantly affects Export and Import
    

4. Consumer Preferences:

• Demand for Specific Products: Changes in consumer preferences and demand for specific products can influence export performance.
• Brand Perception: Positive brand perception and quality reputation can enhance export competitiveness.
  • Example: The growing demand for Indian textiles and pharmaceuticals has boosted exports in these sectors.
    
    

5. Technological Advancements:

• E-commerce and Digital Trade: The rise of e-commerce platforms and digital trade has opened new avenues for Indian exporters to reach global markets.
• Technological Innovations: New technologies can improve efficiency, reduce costs, and create new export opportunities.
  • Example: The increasing adoption of online payment gateways has facilitated cross-border transactions and boosted digital exports.
    

6. WTO Issue:

• Expiry of Nairobi Package: The 10th Ministerial Conference (MC) at the World Trade Organisation (WTO) in 2015 in Nairobi provided India a sunset clause for developing countries and LDCs to phase out export subsidies provided by them for their agriculture exports.

Thus, India is bound to put an end to its export subsidies by the end of 2023.

7. India’s Uncertain Trade Policies:

• India has banned exports of those products in which it has held a leadership position in the world market for several years.

For example, India imposed a ban on the export of rice which contributes to over 40 percent of worldwide rice exports.

Objectives of the Agriculture Export Policy:

Agriculture Export to double agriculture exports by 2022 and reach US$ 100 Billion in the next few years with a stable trade policy regime.

To diversify the export basket, and destinations and boost high-value and value-added agricultural exports including a focus on perishables.

To promote novel, indigenous, organic, ethnic, Traditional, and Non-traditional Agri products exports.

To provide an institutional mechanism for pursuing market access, tackling barriers and dealing with sanitary and phyto-sanitary issues.

Challenges to Agri-Export Policy of India:

1) No stable policy: Unstable and frequently changed export policies harm the farmers and traders. This unexpected bans and restrictions, on wheat or onion (Vegetables) etc., break the market stability such as trade relationships.

2) Conflicting Goals: The government's reduced import duties on pulses and low tariffs on edible oils aim to ensure consumer affordability but conflict with promoting domestic crop diversification to less water-intensive and import-substituting crops.

3) Subsidy Centric Schemes: Populist measures at the time of elections seen in the form rise consumer food and farmer fertilizer subsidies, loan waivers and free power are no doubt politically expedient; but they adversely affect fiscal discipline and agricultural financial health.

4) Low R&D Investment: India invests only 0.5% of agricultural GDP in agriculture research and development. It is insufficient for substantial growth, and needs to be doubled or tripled to enhance production and exports.

5) Quality and Standards: Ensuring consistent quality and compliance with international sanitary and phytosanitary (SPS) standards is a significant challenge for Indian agricultural exports due to pests and diseases.

6) Competition: India faces competition in pricing and quality in its agricultural exports, whereas exchange rate fluctuations also influence competitiveness.

What is the Need for an Agri-Export Policy?

1) Economic Impact: India’s agricultural export sector has been a significant contributor to total exports, with approximately USD 53 billion in agricultural and processed food products exported in fiscal year 2022-2023. However, India’s global share of agricultural exports was only 2.2% in 2016.

2) Food Security: Despite supporting a substantial portion of the world’s population with limited resources, a well-planned export policy can generate additional revenue to reinvest in enhancing food security and increasing farmers’ income.

3) Controlling Food Inflation: Agricultural exports can help stabilise domestic prices, benefiting both consumers and producers, especially during years of bumper harvests.

4) Employment Generation: With around 45% of the workforce engaged in agriculture, promoting agricultural exports can create more job opportunities, particularly in rural areas where farming is predominant.

5) Balance of Payments (BOP): Agricultural exports contribute significantly to India’s foreign exchange reserves, offsetting the trade deficit and maintaining currency stability.

6) Crop Diversity: India’s production of various agricultural commodities presents substantial export potential, which can be harnessed through a well-structured export policy.

7) Trade Relationships: Agricultural exports play a crucial role in building and strengthening trade relationships with countries like the United States, Saudi Arabia, and the United Arab Emirates.

8) Structural Challenges: Addressing challenges such as low farm productivity, poor infrastructure, global price volatility, and market access can be tackled through the policy framework.

Government Schemes to Promote Agri-Export in India :

1) Operation Greens: Operation Greens is an initiative to stabilise the supply and prices of essential agricultural commodities, including fruits and vegetables.

2) Market Access Initiative (MAI): MAI is a program that supports export promotion activities, including participation in international trade fairs, capacity building, and market research

3) Scheme for Agro-Marine Processing and Development of Agro-Processing Clusters (SAMPADA): SAMPADA aims to modernise infrastructure for agro-processing clusters, which helps reduce post-harvest losses, increase the shelf life of agricultural products, and enhance the export competitiveness of Indian agri-products.

4) National Horticulture Mission (NHM): NHM focuses on promoting sustainable horticulture practices, including organic farming, precision farming, and water-use efficiency. It supports the production of high-value horticultural products for export.

5) E-NAM (National Agriculture Market): E-NAM is a pan-India electronic trading portal for agricultural commodities. It enables farmers to sell their produce directly to buyers, reducing intermediaries, ensuring fair prices, and enhancing sustainability.

6) APEDA (Agricultural and Processed Food Products Export Development Authority): APEDA is responsible for promoting the export of scheduled products and provides guidelines for sustainability, quality, and certification requirements for exporters.

7) Setting up of Agri Export Zones (AEZs): AEZs are established in different parts of the country to promote the export of specific agricultural commodities. These zones provide a conducive environment for sustainable agri exports through infrastructure development and technology adoption.

REFORMS NEED TO PUSH EXPORTS:

1) Diversification of Food Export Basket: India needs to increase diversification in food its export basket to avoid the risk to overall exports. Example-India should give a boost to exports of value-added millet products.

2) Focus on Increasing Productivity: Competitiveness is derived mostly from increasing productivity and requires massive investments in agriculture R&D, seeds, irrigation, fertilizers, better farming practices which can be achieved through precision agriculture etc.

India’s overall investment in agriculture R&D is around 0.5% of the agri-GDP which is very low and needs to be immediately doubled

3) Develop robust export infrastructure: To increase agricultural exports, high-quality infrastructure is urgently needed at the seaports and airports.

4) Enhance the cold chain infrastructure: For perishable food stuffs it is required to enhance cold chain infrastructure at various points, like- Rail, Road, Port.

5) Focusing on ready-to-eat foods: India’s focus should be on the export of large-scale food processing rather than exporting only raw materials.

6) Balancing Export Earnings with Environmental Costs: Rethinking on the agricultural export policy on the line with environmental costs.

Ex-China, which has higher rice productivity than India does not encourage the export of rice as every kg of rice product can consume up to 80 litres of water.

7) Removing trade barriers: Establishing task force within Commerce Ministry to identify and eliminate trade barriers