Agri-exports: A window of opportunity for India?

Despite the drop in agri-exports, India may be well placed to benefit from emerging opportunities amid supply chain disruptions in key target markets. To raise its share in global agri-trade, India must aggressively seize the present opportunity with a stable policy on its agri-exports with enhanced investments in supportive infrastructure, as explained by Abhishek Jha, Dr Anjani Kumar and Dr Arabinda Padhee. 

• During January-May 2020, there has been a sharp decline in imports of major agricultural products like preserved vegetables and meat & marine products, impacting India’s exports. Traders in the Middle East are placing fresh orders for rice at snail’s pace. At import hubs like Singapore and Hong Kong, traders are yet to resume work in full swing.
• All agricultural exports in April 2020 experienced a negative growth on Y-o-Y basis. The trend continued in May, with rice and spices being the notable exceptions.
• In this scenario, however, there is also a silver lining, as agri-supply chains have been disrupted across markets like US, EU, Africa, Latin America and Middle East. As a net agri exporter, India can leverage emerging opportunities in these regions. 
• Given the current situation, we cannot deny that prices are plummeting. So, there are trade-offs that either market shares or exports revenue can be realized. To raise its share in global agri-trade, India must aggressively seize the present opportunity with a stable policy on its agri-exports with enhanced investments in supportive infrastructure.

The COVID 19 pandemic has caused dramatic shocks in the global economy and disrupted the demand for trade in agricultural products. The causes of this unusual situation are basically logistical problems in the value chain, labour unavailability and trade-protectionist policies of few countries, which have put very early export restrictions on specific food products.

During January-May, 2020, there has been a sharp decline in the imports of major agricultural products like preserved vegetables and meat & marine products, impacting India’s exports. Traders in the Middle East are placing fresh orders for rice at a snail’s pace. At import hubs like Singapore and Hong Kong, traders are yet to resume work in full swing. There is a paucity of container ships, due to which farm produce exports have been badly impacted. Future prices of wheat, soybean and maize have fallen sharply in May 2020, as reported by the Food and Agriculture Organization (FAO).

The disruption in the supply of agriculture products will adversely affect agri-trade and the consequent fall in demand would shrink GDPs of most economies. The trend of decline in agricultural exports from India is continuing even in April and May 2020. On a YoY basis, a majority of agricultural products have seen exports plummet in these months.

Table: India’s agri-exports in March & April 2020

Source: Ministry of Commerce & Industry, GoI, Figures in US$ Mn

According to the table, all agricultural exports in April 2020 experienced a negative growth on YoY basis. The trend was repeated in May 2020, with rice and spices being the notable exceptions. Indian agricultural exports may continue to get impacted in the coming months. They were already down by 8% before the pandemic on YoY basis (April 2019 to January 2020).

India is a net agriculture exporter; it exports mainly rice, bovine meat, marine products, sugar, tea, spices, and primarily vegetables and fruits. The country exported agriculture goods worth US$ 33.7 billion from April 2019 to March 2020 and imported goods worth US$ 20.9 billion. The effect of the pandemic in the Middle East, European Union (EU) and West Asia has reduced India’s exports of agricultural produce – from rice and buffalo meat, to perishables such as bananas. Plummeting global prices will further impact export revenues and demand for agricultural products. India’s exports are inelastic (the J curve, in international economic theory) and even continuing depreciation of the Indian rupee against the US dollar may not provide any respite.

Source: Ministry of Commerce & Industry, GoI, Figures in US$ Bn

The central government and state governments are ensuring supply and availability of basic food and beverages, to meet the domestic demand. It may ban the export of some agricultural items, like it did recently in the case of onion in coming future if needed. Also, there has been a recent amendment in Essential Commodities Act (ECA) wherein APMC (Agricultural Produce Market Committee) markets/mandis will have minimal role while distributing agri commodities in the nearby market. Now farmers have full degree of freedom to decide where to sell their produce within the entire country, which was earlier restricted. Thus, the government is trying to ensure availability of agricultural products in the domestic market.

To protect public health and welfare, member countries of the World Trade Organization (WTO) are free to take necessary trade measures, including import and export bans, quantitative restrictions on imports and exports, and non-automatic import licensing. But these protectionist trade policies will further inhibit India’s agriculture exports.

Although, the current situation looks grim, there could be a silver lining for the Indian agriculture exporters during this pandemic phase. It is quite obvious that post-COVID-19, the agriculture sector in the European Union is unable to ensure smooth delivery from farm to fork. Not only EU, countries like US, China, Africa, Latin America & Middle East are also at relatively weaker positions.  Being a net agri-exporting economy, there is an opportunity for India to capture greater market share globally for agriculture commodities. Major fruits and vegetables exported to EU from India include grapes, bananas, pomegranates, oranges, gherkins, tomatoes, potatoes, green chillies, etc.

Recently European Union has eased rules for import of fresh fruit and vegetables from India. It has also done away with the requirement for a physical certificate for assuring food safety, animal and plant health standards. Strategizing an increase in agri-exports for such target markets will help India restrict the fallout of the pandemic.

Indian Railways is already transporting essential commodities to different parts of the country through freight trains. During the pandemic, these parcel trains can be connected with major ports from where the consignments can be shipped. Also, the union government has updated the electronic national agriculture markets or the e-NAM, an online trading platform. Thus, farmers can use this digital platform at a large scale, to stay updated on information regarding agri produce, which will further boost exporters, to channelize the consignments without any delay.

Around 50% of India’s commercial fleet of aircrafts has been grounded, as DGCA has allowed them to operate at 30-50% of full capacity. Only cargo flights and special flights are in use for logistics and supply purposes. Knowing the shortage of container ships, remaining grounded aircrafts can be utilized to supply high-value agricultural products across export markets without much delay with approval of the DGCA. But this is only an ephemeral solution until the time trade logistics get back to normalcy. Given the current situation, we cannot deny that prices are falling. So, there are trade-offs that either market shares or exports revenue can be realized. To raise its share in global agri-trade, India must aggressively seize the present opportunity with a stable policy on its agri-exports with enhanced investments in supportive infrastructure.

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Dr. Anjani Kumar is Research Fellow at International Food Policy Research Institute (IFPRI) South Asia Office, Abhishek Jha is consultant at TPCI and Dr. Arabinda Padhee, IAS, is Country Director- India at International Crops Research Institute for the Semi-arid Tropics (ICRISAT), based at New Delhi. Views expressed are authors own.