New Delhi, April 17, 2007 : A new World Bank report From Competition At Home to Competing Abroad: A Case Study of India’s horticulture examines the paradox that while India is a large, low cost agricultural producer, its share in global agriculture exports is minuscule. India produces nearly 11 per cent of all the world’s vegetables and 15 per cent of all fruits, yet its share in global exports of vegetables is only 1.7 per cent and in fruits a meager 0.5 per cent. The report says that Indian exporters perceive high international transportation costs as the number one external barrier to trade: · India’s international transportation costs are 20–30 per cent higher than those faced by other countries. · India’s share of exports to any destination declines by ten percentage points for every 1000 kilometers increase in the distance, and any market that is beyond 14,000 kilometers from Indian borders is unlikely to be served by Indian exporters. · It costs $790 to transport 1 metric tone (MT) of grapes from India to Netherlands—2 to 3 times higher than it takes to transport the same from Chile, although Chile is twice as far from the Netherlands as India. |
In comparison to India, China is currently the world's largest fruit and vegetable producer with a production share of 34%. Despite strong domestic demand, China is among the four top developing country exporters of fresh vegetables. China, Thailand, Chile and Turkey also account for 58% of developing countries exports of processed fruits and vegetables, though developing countries share as a whole in the exports of processed products is low (36% in 2001). The report, seeks a solution to this paradox by studying the horticulture sector, one of the most dynamic segments of Indian agriculture as well as of international trade. Based on an integrated analysis of the sector—from farm to market—on the basis of primary surveys of farmers, agents, and exporters across fifteen Indian states, the report lists three major factors that are undermining India’s potential for reaching supermarkets across the globe: - The high costs of getting agricultural produce from farm to market erode any advantage the Indian farmer enjoys by virtue of being a cheap producer.
- The existence of a huge gap between the stringent health, safety, and quality standards required by foreign governments and buyers, especially in the richer countries, and the weak standards and assessment mechanisms in India.
- Pernicious forms of trade protection in horticulture such as those that discriminate against efficient delivery, quotas that impose harsh tariffs on imports above certain low levels, and a system of special safeguards that is a source of considerable uncertainty for successful exporters.
The report states that these three factors lead to poor logistics and hence delays and wastage, and weaken farmers’ incentives to improve quality. Limited standardization makes physical inspection a must before any transaction, further adding to costs. A protected domestic market also increases transport costs for exporters because low imports mean that exporters must not only bear the cost of the outward journey, but also the unutilized capacity on the way into the country. High delivery costs increase the burden of foreign tariffs because they are imposed on the final product price. With reference to market conditions and tariff the report states that: - Indian farmers lack awareness about market conditions because of poor backward linkages in the distribution chain, and have inadequate access to cold storage facilities, leading to seasonal gluts and extreme price variation. In Delhi, for example, potato prices ranged from Rs 2.9 per kg to Rs 9.5 per kg in a single year (2002).
- In India, marketing chains are highly fragmented, often with six to eight intermediaries. Farmers tend to receive a small share of the (domestic) consumer price—only about 25 per cent in the case of unprocessed vegetables compared to 40 per cent in developed economies.
- The average wastage in the horticulture sector, between the farm-gate and the wholesale level, is around 12 per cent of production.
- Some of the most demanding standards today are imposed not by foreign governments but by foreign buyers, reflected in warnings and reductions in price and demand.
- The low average tariff for horticultural products in developed countries is deceptive. There are serious distortions in the form of minimum entry prices, seasonal variation of tariffs, tariff quotas, preferential access and tariff escalation. The escalating tariff structure in the EU, US, and other countries (for example, Japan and Korea) creates strong disincentives to the export of relatively more processed products.
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Commenting on the report, Aaditya Mattoo, Lead Economist and one of the authors of the report said, “Looking ahead, we propose two broad priorities for reform that will raise farmers’ incomes, lower retail prices and improve the international competitiveness of Indian agriculture - create an integrated and competitive domestic agricultural market, and second to improve communication, transport, storage, distribution, and agricultural support services.”
“Radical reform in services is also necessary. Providing farmers better access to services – from transportation to distribution - will enhance the economic gains from, and strengthen the political case for, agricultural trade liberalization,” said Deepak Mishra, Senior Economist, one of the co-authors of the report. "A willingness to reform its own trade regime – which in any case subsidizes the inefficient intermediary more than the farmer - will enable India to take a more forceful position in the WTO negotiations. It can then more effectively secure not just lower levels of foreign protection, but also greater transparency, simplicity, and predictability in foreign trade regimes,” added Ashish Narain, Economist, who is also one of the authors of the report. *********************** For more information on World Bank activities in India, please visit:
http://www.worldbank.org/in |
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