FROM COMPETITION AT HOME TO COMPETING ABROAD: A CASE STUDY OF INDIAS HORTICULTURE

Aaditya Mattoo, Deepak Mishra, Ashish Narain

THE WORLD BANK

The Indian farmer is globally competitive but Indian agriculture is not. Why?
India n pric e s a s a % o f wo rld pric e s ( 2 0 0 1- 0 3 ) Vegetables 53%

Fruits

63%

India 's s ha re in glo ba l e xpo rt s (1 -93) 991 (2001 -03)

0%

20%

40%

60%

80%

1 00%
Vegetables

2.1 % 1 .7%

India 's s ha re in glo ba l pro duc t io n ( 2 0 0 1- 0 3 )

Fruits

0.4% 0.5%

Vegetables

1% 1
0%

2%

4%

6%

8%

1 0%

Fruits

1 5%

0%

5%

1 0%

1 5%

20%

Source: UN COMTRADE, 2005

Previous diagnoses of the problems of Indian agriculture

Foreign trade barriers

Protectionist standards

High costs of production

Poor infrastructure

The first integrated supply chain analysis: from farm to retail

Based on primary surveys of 10 horticultural products Covered 1400 farmers, 200 commission agents, 65 exporters across 16 major Indian states
Detailed interviews with major stakeholders

Commodities Surveyed
Mango, 110 Mosambi, 102

Grapes, 98 Okra, 106

Banana, 100 Onion, 100 Veget ables Apple , 60 Fruit s

Peas, 95 Tomat o, 100 Pot at o, 101

Source: Value Chain Survey, The World Bank

States Covered
Karnataka, 45 JK, 20 HP , 20 A P , 74 WB , 40 Gujarat, 1 40 Haryana, 1 26

Uttaranchal, 40

UP , 1 50

M aharashtra, 1 92

Rajasthan, 54 P unjab, 98 High Inco me Orissa, 80 M iddle Inco me TN, 80 M P, 13 1 B ihar, 20 A ssam, 81 Lo w Inco me

Source: Value Chain Survey, The World Bank

Factors Impeding Indias Exports

Factors Impeding Indias exports

High Cost of Delivery

Standards Gap

Trade Barriers

Logistics and intermediation costs dwarf production costs

120

Farmers share in retail price

Importer, 23.5

India:15-20%
100

Retail price= Rs.120.3 CIF price= Rs.96.8

Thailand, US: 30-40%

Rs per Kilogram

80

International freight & insurance, 53.6

60 FOB=Rs.43.2 40 Exporter, 24.2 Wholesale price=Rs.18.9 Intermediary, 5.4 Farmer, 13.5 Different stages of the supply chain 1 Farmgate price=Rs.13.5

20

Source: Value Chain Survey, The World Bank

Indias international transport costs are higher than those of competing countries
1800 1600 1400 1200 1000 800 600 400 200 0 Pakistan India Chile India Netherlands 1338 874 655 476 167 88 India 505 479 649 958 Potato Saudi Arabia ($/per MT) 785 Mango UK ($/per MT) Grapes Netherlands ($/per MT) 315 Difference in the price betw een originating port and the destination port (Specific countries) Price at the originating port (All countries)

Source: UN COMTRADE, 2005

Why?
Air Transport
Unpredictability and low volume (shadow prices) Excessively high taxes on fuel and airport charges Restrictions on ownership and entry Inadequate and under-utilized infrastructure

Maritime Transport
Inflexible functioning of major ports Lack of multi-modal transport Cost-plus tariff policy

The Standards Gap

M anif est at io n o f rising st andards o n Indian expo rt s

no response cut back in orders from important buyer warning from buyer of official agency reduced price from buyer frequent product rejection one/periodic rejection by Indian authorities other ban/temp ban on imports by foreign authority ban/temp ban on exports by Indian authorities one/periodic rejection by external official agency one/periodic rejection by external buyer 0% 0% 0% 0% 0% 0% 5% 1 0% 1 5% 20% 25% 30% 3% 8% 1 0% 1 9% 24%

35%

35%

40%

Some foreign standards are protectionist But weakness in domestic standard setting legitimize foreign barriers And mandatory official standards are becoming less important than quality standards imposed by buyers

Trade Barriers
Average tariff is low but that can be deceptive

Minimum entry price

Seasonal variation of tariffs Tariff quotas Preferential access, e.g., Turkey in the EU, Mexico in the US, Everything but Arms deal for Africa.

Tariff escalation Higher tariffs on processed products than on fresh fruits

Trade Barriers

The combined effect of three factors is far greater than the sum of their parts
Poor logistics lead to 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 can increase 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.

Key Priorities
Creating an integrated and competitive supply chains for agriculture Radical reform in transport, storage and distribution services Pro-active engagement in international trade negotiations