Farm exports

WHY IN NEWS?

• In his address to Parliament at the start of the Budget session, President of India said agricultural exports reached a record level of Rs 3 lakh crore during 2020-21 period. Agricultural export during 2020 has improved by 43.4 per cent.     

BACKGROUND:

• India has been a net exporter of agricultural products since the economic reforms began in 1991.
• As per WTO’s Trade Statistics, share of India’s agricultural exports and imports in the world agriculture trade in 2017 was 2.27% and 1.90%, respectively.
• Indian agricultural/horticultural and processed foods are exported to more than 100 countries/regions.
• For the agriculture and allied products exports, USA was the largest export destination during 2020-21 and China was the second largest. Other major destinations were Bangladesh, UAE, Vietnam and Saudi Arabia.
• The new agricultural export policy was implemented in 2018, and agricultural exports are expected to touch USD 40–45 billion in FY 2021–22.
• India being the second-largest agricultural producer in the world with 98 per cent of agricultural commodities seamlessly complying with the legally-permissible upper limits for pesticide residues makes its food products among the safest commodities.
• Trade agreements bolster trade flows, but policymakers have traditionally restricted trade in agriculture.

STATISTICS:

• Share of farm export in overall domestic exports:
  • India’s total exports have an 11 per cent contribution from agricultural and processed food products.
• Major exported commodities:
  • Marine products, basmati rice, buffalo meat, spices, non-basmati rice, cotton raw, oil meals, sugar, castor oil and tea.
• Farm export as percentage of GDP:
  • The agricultural exports as a percentage of India’s agricultural GDP has increased from 9.4 % in 2017-18 to 9.9 % in 2018-19.
• Commodity wise:
  • Rice exports are expected to reach 21-22 million tonnes in 2022
  • Marine product exports are expected to exceed USD 8 billion for the "first time" this fiscal year.
  • Coffee exports have registered a healthy growth of around 35%.

CHALLNEGES FACED IN FARM EXPORTS:

• Low value addition:
  • The proportion of processed agricultural products in India’s total agriculture export is insignificant - less than 15% compared to 25% in US and 49% in China.
  • India has remained at the lower end of the global agri export value chain given that majority of its exports are low value, raw or semi-processed and marketed in bulk.
• Not market driven:
  • Choice of seeds and cultivation practices makes only a select range of Indian crops competitive in the global market.
• Poor productivity of agriculture sector:
  • The yield level of the majority of crops in India remains much lower than the world average.
  • This is compounded by fragmented landholdings. The average farm size in India is only 1.15 hectares. 
  • Majority of the Indian farmers belongs to small and marginal category. The agricultural products produced were used majorly for own consumption.
  • Low yields, rain fed farms and high wastage >> leads to higher production costs and limited buffer for exports
• Poor supply chain infrastructure:
  • While the country is a food surplus one, supply chain inefficiencies hurt exports.
  • High cost due to poor logistics:
    • India faces transportation bottlenecks, poor farm gate storage infrastructure, high turnaround time at the exit port etc.

• • • These poor logistics are estimated to add 6-8% to the Free On Board (FOB) cost when compared to developed countries like Germany, Singapore, and Hong Kong.
• Trade agreements are not fully utilized:
  • Farm exports to countries or blocs India has a regional trade agreement with is only 24.22 per cent of its total exports.
• Poor backward integration:
  • The backward integration in India especially for perishables is inefficient and unorganized, resulting in quality and longevity issues.
• Lack of synergy:
  • There is a lack of synergy between the state and central government as agriculture is a state subject, while “trade and commerce” are in the Union list.
• Government’s pro-consumer bias in India’s farm policy:
  • Government puts export restrictions on farm produce to prevent inflationary pressures in the domestic economy >> this hurts Agricultural exports. 
  • The policy deprives farmers of higher prices in the international market
• Unequal level playing field exists at global agriculture market:
  • The Agreement on Agriculture (AoA) of the World Trade Organization (WTO) liberalised agricultural trade, and import tariffs plummeted, but technical know-how is still concentrated among developed nations and agriculture still a topic of negotiation at the WTO.
• Pandemic induced shocks:
  • The pandemic delayed shipments, raising the freight cost and affecting exporters’ competitiveness.
• Lack of Training & Skill development:
  • At farm level:
    • Unregulated input (chemicals) usage at the farm level and inadequate harvest and post-harvest management affects quality and shelf life of the produce.
  • At exporters’ level:
    • Lack of awareness regarding documentation and procedures to be followed for exports and lack of awareness on existing schemes and policies related to exports.
• Non-tariff barriers (NTBs):
  • Indian agriculture exports face NTBs in attractive markets such as Europe (e.g., more stringent inspections than for other top exporting countries).
  • NTBs and lack of strong trade agreement with target markets are key inhibitors to dramatically increasing Indian agriculture exports.
• Quality issues:
  • Indian agriculture commodities meet the sanitary and phytosanitary (SPS) standards of the domestic market but encounter issues in US and EU.
  • SPS issues lead to at-port rejections, especially for shrimps and spices and limit India’s ability to significantly penetrate the European market.
  • For instance, India has the highest number of US notifications and refusals between 2014 and 2018, underscoring the quality challenges India will need to grapple with to grow exports.
• Repeal of new farm bills:
  • The new Farm Laws, which were expected to promote the ecosystem of storage and agri-logistics, enhanced stockholding limits, etc. were aimed to boost agri-exports.
  • But owing to popular protests it was repealed.
• Other constraints:
  • Uncertain government policies
    • Example: export bans, policies that artificially impact the prices of commodities, inward-looking policies that focus more on food security etc.
  • Competitiveness challenges vis-à-vis countries such as Vietnam;
  • Unable to export its vast horticultural produce due to lack of uniformity in quality, standardization and its inability to curtail losses across the value chain. 

STEPS TAKEN TO INCREASE FARM EXPORTS:

• Agricultural and Processed Food Products Export Development Authority (APEDA):
  • India encourages agricultural exports by creating a dedicated body named the APEDA.
  • Under the Export Promotion Scheme of APEDA, the government is providing assistance to the exporters of agricultural products.
• Agriculture Export Policy in 2018:
  • The policy aims to double farmers’ income by 2022 by doubling agricultural exports from the country.
  • The policy also aims to integrate Indian farmers and agricultural products into the global value chain.
• Transport and Marketing Assistance for Specified Agriculture Products:
  • It is a Central Sector Scheme
  • The scheme aims for assisting the international component of freight handling and marketing of agricultural products. 
• FDI Policy:
  • 100% FDI is allowed in the following activities of agriculture through the automatic route -  Floriculture, Horticulture, production of Seeds and planting material, Animal Husbandry Aquaculture, Tea sector etc.
• Other steps taken:
  • Extending the validity of various certifications/accreditations beyond their expiration dates
  • Establishing control rooms to handle issues
  • Issuing online certificates for exports
  • Enabling the opening of more testing facilities. 

WAY FORWARD

• Technological up-gradation agri exports:
  • Digitisation and technologies that ensure minimal contact will continue to grow in importance after the pandemic; and collaborating on niche agricultural technologies is crucial.
  • Domestic policies and schemes would need to align with the disruptive modifications that Artificial Intelligence, IoT, and Blockchain will bring to the field in the coming days.
• Technology transfer:
  • India should include in trade negotiations the issues of exchanging agricultural technology and related services and exporting value-added agriculture products through technology transfer.
• Infrastructure status:
  • Government can provide Infrastructure status to agricultural value chains, such as warehousing, pack-houses, ripening chambers, and cold storage, etc. 
• Brand development:
  • Establishing brands can help farmers gain competitive advantage in ‘buyer-driven’ global markets.
  • California almonds, Chilean wines, and Swiss chocolates enjoy a high stature in their respective product groups and are globally recognised.
  • Branding differentiates products and adds value because consumers perceive that the quality of branded products is superior to that of unbranded products.
  • Branded items usually fetch better prices and can command customer loyalty.
  • Except for Basmati rice and a few horticultural products like Maha-Grapes, India has not been able to take advantage of its unique positioning for many agri-commodities.
  • The issue of providing Indian agricultural exports an international geographical indication, therefore, should be included in negotiating trade agreements.
• Addressing SPS issue:
  • A unified body that can handle all Sanitary-Phyto Sanitary (SPS) issues from a single window can be considered. 
  • The USDA and USFDA in the US and the FSVPS in Russia are examples of how international authorities deal with market access requests for imports and exports, keeping them in a dominating position to make an adequate quid pro quo.
• Strengthening agri-food supply chain:
  • The quality regimen system needs to be strengthened end to end, from the choice of seeds to production practices, to better planning and storage, to ensure reliable and unbroken supply to global clients.
• Augmenting cargo handling facilities
  • APEDA has suggested augmenting cargo handling facilities at airports, ports, etc. This will reduce the waiting time.
• A specialized channel for perishabale agro-products:
  • Government can create a Green channel clearance for perishable agro products in toll, air, and freight cargo stations. 
• Policy alignment:
  • The policies relating to Minimum Support Price (MSP) will also have to be made WTO compliant.
  • Tweaking of products to meet specific consumer tastes, scouting potential markets, and understanding the requirements will also need to be taken up scientifically.
• Adoption of recommendations made by expert group set up by 15th Finance Commission:
  • Centre should be an enabler
  • Create State led export plan with participation from stakeholders.
  • Need for higher investments in R&D, technology with regulatory clarity around IP issues
  • Create a sharper, more coordinated investment strategy specifically for promotion of agricultural exports, with a focus on value addition.
• Other suggestions to emerge as a top global exporter:
  • Reforms in Agri-production practices to ensure better productivity
  • Development of a robust supply chain and logistics
  • Streamlining regulatory compliance practices
  • Delivering transparency and traceability using technology
  • Developing products suited to the global palate – a ‘fork’ to ‘farm’ approach.

PRACTICE QUESTION:

Q. “Agricultural exports are extremely important as the exports help farmers to take advantage of wider international market and increase their income”. Discuss.