capacity building in agricultural trade

Course Seminar

on

CAPACITY BUILDING IN

AGRICULTURAL TRADE

Presented by

RISHABH KUMAR

Roll No. 20372

2

Case study

Building farmers’ capabilities

Import tariffs and their impact

Non trade barriers

Measures of Trade competitiveness

trade competitivess for rice

Conclusion

Introduction

INTRODUCTION• Globalization and Indian agriculture- diverse world economies under one umbrella to

facilitate freer trade .

•Liberalization- not just withdrawal of the state from economic activities, but creation of newer

forms of alternate organizations.

•livelihood for 58 per cent and 80 per cent of the farmers are small and marginal category.

•Agricultural trade status- the largest producer of milk, cashewnuts, coconuts, tea, ginger,

turmeric and black pepper and also major producer of wheat, rice, sugar, groundnut, tobacco and

inland fish .

•It is still a marginal player as it accounted 1.22 per cent of world imports as well as 1.70 per cent

of world exports in 2010-11.

•At country level, agricultural sector contributed 10.57 per cent of national exports in 2009-10

•India‟s agricultural exports have increased from Rs. 6,013 crores in 1990-91 to Rs. 89341.33 crores in 2009-10.

India‟s agricultural imports also have increased from Rs. 1,206 crores in 1990-91 to Rs. 59,528crores in 2009-10 (accounts for 4.37% in total India‟s imports).

Trade competitiveness of agricultural commodities

•For certain commodities like basmati rice and spices; India has a niche market access in spite of competition.

•Export earnings from traditional group consisting of tea, coffee, spices, and tobacco suffered mainly due to sharp fall in international prices.

•Trade competitiveness of commodities varies across space and time.

• Largely influenced by cost, output prices, production structure and quality.

• Major challenges in terms of gap in quality and food safety standards at the international markets.

• India has made several significant reforms at institutional level which has enhanced the access to international markets with Sanitary and Phyto-sanitary (SPS) measures and Trade Related Intellectual Property Rights (TRIPS).

• Setting-up of National Codex Committee and widening of export basket by Agricultural and Processed Food Products Export Development Authority (APEDA)

Farmers’ capabilities

• Farmers’ price realization in domestic markets as well as share in export prices is low mainly due to price volatility in international markets and market inefficiency.

• International trade has become highly competitive and the competitive advantage of some of these commodities would be lost due to the infrastructural advantage prevalent in the competing countries.

• Very weak information flow along the value chain.

• Most of the farmers being the suppliers of raw materials (commodities), they are price takers and flow of benefits arising out of value addition is insignificant.

• Lack of bargaining power, lack of access to information, knowledge, technology, and capacity and organizational capabilities makes the farmers very difficult to take out the benefits out of changes in prices.

Farmers’ capacity building

• strong price linkage - full transmission of price shocks

•Narrowing the fluctuations in the producers’ prices through government intervention.

• widening of export basket by increasing the no. of commodities.

•Exporters have to take special care in maintaining the quality at all stages of exports.

• Farmers’ Associations and SHGs should be helped to export on competitive terms by spreading awareness of the opportunities available for external agricultural trade .

• Quality and trade literacy programmes have to be launched across the country.

• The agri export zones should be further strengthened and should become places where farmers will get the best possible price for their produce.

• Increasing productivity and promoting modernization of agriculture.

Trends and growth in trade volumes (percent change)

projections

2012 2013 2014 2015

IMPORTS

advanced economies 1.1 1.4 3.5 4.5

emerging & developing economies 5.4 5.3 5.4 6.5

EXPORTS

advanced economies 2.1 2.3 4.2 4.3

emerging & developing economies 4.8 4.0 5.1 6.2

SOURCE: IMF, World Economic Outlook, April, 2014•The sudden and sharp decline in world trade from US $ 16 trillion in 2008 to US$ 12.4 trillion in2009 was followed by an impressive recovery in2010.

•Growth in trade volumes of emerging and developing economies in2010 and onwards was more robust than that of advanced economies, just as the fall in 2009 had been less severe.

•the trade growth in emerging and developing economies is expected to be more robust than that in the advanced economies in 2014 and2015.

Indicator 2009 % share 2011 % share 2013 % share

Agricultur

al products1182305 10 1661796 9.64 1744833 9.91

Fuels and

mining

products

2272247 19 4064969 23.5 3996976 22.7

Manufactu

res8362923 70.76 1151078 66.7 11848002 67.3

Total 11817475 6877843 17589811

Share of agriculture in total world trade

World average agricultural tariff by region, 2009

•Average tariffs across 13 regions range from 25 to 113 percent .

•High protection for agricultural commodities in the form of tariffs continues to be the major factor restricting world trade

•The large differences in average tariffs across countries make it possible for farmers in one country to benefit from tariff protection while farmers in other countries lose income .

•Higher prices affect supply because farmers respond by increasing output, and higher prices affect demand because consumers buy less.

•The costs imposed on other countries by lost export sales and lower world prices.

•From a global perspective, high average tariffs cause demand to contract and supply to expand by drawing resources into agriculture, both leading to lower world prices.

World average agricultural tariff by commodity, 2009

Tariff rate quota

•the non-transparent mechanisms through which they operate create an additional layer of protection and more difficulties for developing country exporters.

•As part of the 1995 Uruguay Round Agreement on Agriculture, the World Trade Organization prohibited agricultural trade quotas among its member nations. TRQs, however, were permitted as a form of transition to simple tariffs

•The anti-development bias of the trade regimes is amplified by the extent to which tariff structures are escalated, with higher rates applied as the degree of processing increases, discouraging developing country exporters from moving up the value chain.

•While most protection is given through some form of trade measure, substantial additional support is provided by direct budgetary payments to farmers

Border protection policies

•To buffer domestic markets against dramatic drops in world prices that lead to import surges.

•Under such circumstances the production base of vulnerable sections of the farm population can be wiped out.

•Unlike USA India cant compensate them by providing emergency packages of $34 billion.

“Behind the Border” Reforms

•Domestic pricing and marketing reforms continue to be the weakest link in Indianagriculture.

•Political pressures- ends up pursuing economically unsound policies. Eg. Maize pricecrash during liberalization period.

•When this happens repeatedly, farmers‘ production decisions are guided byadministered prices rather than market forces.

•At last the very logic of trade liberalization remains undermined.

•Need to look ways other than procurement- like hedging instruments against pricerisk, greater vertical integration with user industries and commodity futures trading

•Some of the recent policy initiatives by GOI and RBI are fiscal incentives, institutionalchanges, procedural rationalization, and enhanced market access across the worldand diversification of export markets.

•India has also adopted a multi-pronged strategy to deal with the issues relating tonon-tariff measures (NTMs)

Non-tariff Barrier—A Bitter Pill

• with declining tariffs on agril. Products, the use of NTBs has increased world wide, offestting the advances brought about by lower tariffs.

•NTBs are not subject to reporting by WTO member countries , so they go unreported.

•Differences in the technical standards b/w the exporting and importing country, are the most common type of NTB in the agril. Products.

•Limited capabilities of DCs.

•2005 EU regulation on traceability requires all the exports to identify the origin-additional burden

•Regulation on environmental and labour standards.

•Domestic NTBs in DCs which are not often not highlited. Eg- excessive customs, inadequate use of information tech. , lack of cooperation among customs and govt. agencies, etc

Particulars Agmark

(India)

ASTA ESA Japan Malaysia IPC

1. Organic extraneous matter (% m/m) max 0.8 2

2. Inorganic extraneous matter (% m/m) max 0.2 1 2 1 1

3. Light berries (% m/m) max 5 2 2

4. Pinhead and broken berries max 4

5. Bulk density (g/L) min 490 550

6. Moisture % (max) 11 12 12 11 10 12

7. Total ash (% m/m) max 6 7

8. Non volatile ether extract % (min) 6

9. Volatile oil % (mL/100 gram) 2.5 2

10. Piperine content (% m/m) min 4

11. Whole insects dead (by count) 2 <2 in sample

12. Excreta mammalian (mg/lb) 1 0

13. Other excreta (mg/lb) 5 0

14. Mold (by weight) 6 1

15. Insects defiled /infested % by weight max 5 0 1

16. Acid insoluble ash (% w/w) max 1.5

Note: % m/m = per cent mass / mass, % w/w = per cent weight /weight, mg/lb = milligram per pound, g/L = gram per litre

A comparison of physical quality standards adopted by various countries and institutions for black pepper:2010

Source: Arathi et. al. (2012)

Particulars Agmark (India) ASTA ESA Malaysia IPC

1. Salmonella Not allowed Not allowed Not allowed Not

allowed

2. Yeast and mold 106 No./g 102 No. count/g

max

absent max

3. Escherichia coli 103 No./ g

absent

101 No./g max

4. Aflatoxin B1 2 ppb (max) 5 ppb

5. Aflatoxin B1+B2+G1+G2 30 ppb

(max)

4 ppb (max) 10 ppb (max)

A comparison of microbiological parameters adopted by different countries for import of black pepper: 2010

Source: Arathi et. al. (2012)

Pesticide Agmark (India) US Netherlands UK Germany Spain

Acephate 0.2 4 0.1

Azinphos-

methyl

0.5

Chlorpyriphos 1 1 0.01 - 0.05 0.05

Cypermethrin 0.1 0.05 0.05

Diazinon 0.1 0.05 0.05 0.02 0.05

Dichlorvos 0.1 - 0.05 - 0.1 -

Dicofol 0.1 5 0.05 0.5 0.02 0.02

Dimethoate 0.5 2 0.01 0.05 0.5 0.05

Disulfoton 0.05 0.02

Endosulfan 5 2 0.02 0.1 0.05

Ethion 5 1 0.01 - 0.05 0.1

Fenitrothion 1 0.05 0.05 0.05 0.05

Malathion 1 8 0.05 8 0.05

Pesticide residue tolerance limits fixed by some black pepper importing countries and India (MRL in milligram per kilogram)

Source: Arathi et. al. (2012)

DescriptionDeveloped countries South Asia

Middle East and

North Africa

Latin America and the

Caribbean

Europeand

CentralAsia

East Asia and thePacific

Sub-Saharan

AfricaQuad

Agricultural and

Fishery products48.24 14.87 57.69 34.24 32.93 24.42 18.58 41.98

Crustaceans (live) 58.64 8.33 75.00 30.98 43.56 22.22 20.00 50.00

Other fish 64.49 14.07 75.16 30.96 43.85 22.87 20.28 55.43

Edible fruit and nuts 53.95 19.21 54.61 37.09 32.36 24.21 28.20 54.67

Coffee and substitutes with coffee 32.26 17.86 44.64 28.10 20.36 26.19 18.18 21.43

Oil seeds and miscellaneous grain, seeds and fruits

53.93 14.20 68.55 40.75 38.49 28.71 25.12 37.41

Other agricultural and fishery products 43.50 11.11 52.08 35.28 28.59 32.87 17.80 27.50

Minerals and Fuels 6.72 3.29 5.73 6.64 6.72 4.52 0.16 6.53

Manufactures 10.67 7.20 10.96 11.68 7.15 5.57 1.74 16.78

Frequency of Non-tariff Measures Faced by LDCs for Export of Agricultural Commodities

Freq. of NTMs for agril. Product is higher than others

NTMs for agril. Prod. higher for developed and QUAD countries

Source: Deb(2007)

Preventing NTBs

• Developing countries should view SPS not as a trade barrier but as an opportunity to upgrade quality standards and market sophistication

•General System of preferences provide unilateral and non reciprocal preferences which allows selected agril. And industrial products originnating in DCs to come into developed countries at zero tariffs.

•Private social labelling initiatives to promote “socially responsible” production that extend beyond organic production like EurepGA, international social and labeling alliance , fair trade labeling organisation.

•Achieving SPS measures through GAP, GMP and GHP.

Meeting SPS compliances

GAP GMP GHP

GAP knowledge(49%)

Financial support (25%)

Interpersonal skills and tacit information (21%)

Physical infrastr. (3%)

Business strategy (35%)

Skills and knowledge (25%)

Safety standards (20%)

Physical infrastr. (15%)

Finacial infrastr. (5.35%)

Codex knowledge (35%)

Physical infrastr. (23%)

Financial infrastr. (17%)

Assured quality (12.5%)

Interpersonal skills and knowledge (11.19%)

Source: Arathi et. al. (2012)

Comparative advantage and competitiveness

•In its simplest form states that a nation can enhance efficiency in resource use and hence net welfare, by producing and exporting commodities in which it is relatively efficient and importing commodities in which it is relatively not so.

•The competitiveness of countries in the long run is influenced by three major factors : 1. Comparative advantage 2. Country‘s ability to develop comparative advantage 3. Country‘s ability to develop competitive advantage

• A very simple measure of comparative cost advantage in producing various agricultural commodities can be derived by estimating the value of output per unit of input cost.

competitiveness indices

•nominal protection coefficient (NPC)

•effective protection coefficient (EPC)

•domestic resource cost ratio (DRCR)

These are used for measuring comparative advantage, gains from free trade, and losses from market distortions for agricultural commodities

Nominal Protection Coefficient (NPC)

•simplest of all the indices.

•measures the divergence of domestic price from international prices.

•determines the degree of export and import competitiveness of the commodities in question.

•estimating the level of protection under exportable or importable hypothesis depending upon whether the country is a net exporter or a net importer of the commodity.

• NPCI=Pid/Pi

b

Where Pid=Domestic wholesale price of ―i‖th commodity at specified place and time

Pib= Border price (CIF or FOB) of ―i‖th commodity at same place and time

•NPC=1 ;indicates no protection given>1 ; indicates that protection is given to the commodity <1 ; indicates that the commodity is taxed

Domestic Resource Cost Ratio (DRCR)

• to judge social profitability in producing and exporting a commodity

• it computes the value of domestic primary and non-tradable resources in order to earn or save a unit of foreign exchange through production and exchange of the commodity

•DRCR value less than 1.0 indicates comparative advantage .

•EPC is the ratio of value added in private prices to value added in social prices.

•An EPC value of greater than one suggests that government policies provide positive incentives to producers while values less than one indicate that producers are not protected through policy interventions.

Effective protection coefficients

Policy Analysis Matrix (PAM)

•developed by Monke and Pearson (1987)

•for measuring input use efficiency in production, comparative advantage, and the degree of government interventions.

•The basic format of the PAM as shown in Table below is a matrix of two-way accounting identities :

Private profit: N=A-(B+C) Social profit: O=D-(E+F) Output transfer: G=A-D Input transfer: H=B-E Factor transfer: I=C-F Net policy transfer: P=N-O

0

2

4

6

8

10

12

14

16

% Agriculture Exports to Total National Exports for India

% Agriculture Exports to Total NationalExports

Source: DGCIS

0

5000

10000

15000

20000

25000

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15(April - June)

Exp

ort

val

ue

Mo

vin

g av

g.

year

Moving Avg. of agril. Export values

Trade competitiveness of rice

Source: APEDA, 2014

International Rice Production

2000 2005 2012

Sr No. Country Share(%) Share(%) Share(%)

1 China P Rp 31.76 29.63 28.38

2 India 21.31 21.09 21.20

3 Indonesia 8.68 8.72 9.59

4Vietnam Social

Republic5.44 5.87 6.07

5 Thailand 4.32 4.36 5.25

6 Bangladesh 6.30 6.64 4.71

7 Myanmar 3.57 3.96 4.59

8 Philippines 2.07 2.36 2.51

9 Brazil 1.86 2.12 1.60

10 Japan 1.98 1.83 1.48

International rice production

Source: APEDA, 2014

DO

MES

TIC

P

RIC

ES

Domestic price of Tradable output A 16610.72Domestic price of Non-Tradable output B 2840Domestic price of Tradable input C 3066Domestic price of Non-Tradable input D 10990

ECO

NO

MIC

P

RIC

ES

Border price of Tradable output E 19991.48Opportunity cost of Non-Tradable output F 2840Border price of Tradable input G 8848Opportunity cost of Non-Tradable input H 10990

SUR

PLU

S

Private Profit under Autarky (PPA) (A+B)-(C+D) 5394.72

Private Profit under Free Trade (PPFT) (E+B)-(C+D) 8775.48

Social Profit under Free Trade (SPFT) (E+F)-(G+H) 2993.48

Total Policy Transfer (TPT) (PPA-SPFT) 2401.24

CO

MP

ETIT

IV

ESN

ESS

MEA

SUR

ES Nominal Protection Coefficient (NPC) (A/E) 0.83089Effective Protection Coefficient (EPC) (A-C)/(E-G) 1.215484Effective Subsidy Coefficient (ESC) [(A-C)+(H-D)]/(E-G) 1.215484Domestic Resource Cost Ratio (DRCR) (H-F)/(E-G) 0.731369

Policy analysis matrix for rice for 2010-11 prices (per metric tons)

Case study on Bilateral India-Pakistan Agricultural Trade: Trends, Composition and Opportunities

Ramesh Chand and Raka Saxena

objectives

•Trend and composition of agricultural trade by Indian and Pakistan, focussing on 7 years before and after the implementation of SAFTA

•Analysing the comparative advantage and trade complementarities in agricultural trade between 2 countries.

•Analysing tariff and non-tariff measures for India and Pakistan.

•Comparision of level of subsidies given to agriculture in India and Pakistan in terms of their effect on trade.

•To identify opportunities for agricultural trade between two countries

Data and methodology•time series data on agricultural exports to Pakistan and agricultural imports from Pakistan .

•Information on tariff and non-tariff barriers was taken from WTO, the respective Government websites and the MacMap website.

•revealed comparative advantage calculated by using the Balassa Index

where, RCAij =Revealed comparative advantage of ith country for jth commodity Xij = ith country’s export of commodity j to world

Xi = ith country’s total exports to world Xwj = World exports of commodity j Xw =Total world exports

•The trade complementarily index was computed to assess the congruence in trade between two nations.

Where d is the importing country of interest, s is the exporting country of interest, i am the set of commodities, x is the commodity export flow, X is the total export flow, m the commodity import flow, and M the total import flow.

Conclusions and Policy Implications

•Very low trade until late 1990s.

•Big jump in bilateral trade after implementation of SAFTA.

•Trade patterns in last 15 years can be viewed under 3 categories:1. Trade for domestic stablisation2. Trade based on CA3. Trade in specialized products

•India has CA in export of tea, cotton, dried leguminous vegetables, tomato and cane sugar whereas Pakistan has high CA for dates, cotton, woven fabrics, leather of bovine and cane sugar.

•There is considerable scope for promoting export of specialized items as trade is stable and growing.

India’s exports to Pakistan have seen higher growth than Pakistan’s exports to India.

Increased from close to 46 per cent in 2003 to around 60 per cent in 2008. Thereafter, the index decreased to 44 per cent in 2012.

TCI

•Despite implementation of SAFTA, some strong tariff and non-tariff barriers continue to restrict agricultural trade between the two countries. This requires action in trade facilitation, further lowering of tariffs , pruning the negative lists and removal of non-tariff trade barriers.

•Pakistan has considerably reduced the items on its sensitive list in various groups except in dairy and animal products and fruits and nuts like apples, grapes and apricots.

•Indian farmers have a benefit of 4 per cent over Pakistani farmers in terms of subsidies and this can be factored into the trade policy.

•Therefore, higher level of subsidies in Indian agriculture compared to Pakistan should not be a major issue against trade promotion between the two countries.

•Another hitherto neglected area related to agriculture trade is the trade in technology.

•There are tremendous opportunities for science-led agricultural growth. India and Pakistan can benefit immensely through trade in technology.

•Requirement of large amount of capital and a high level of skills and knowledge.

conclusion

•India and other developing economies have a large unused potential in agricultural trade in terms of both increasing productivity and institutional level.

•Commodities like rice, spices, cashew nut, etc provides India a niche market access with high trade competitiveness.

•Farmers’ capabilities needs to be strengthened through better price linkages widening the export basket, SHGs, FAs, and improving trade literacy.

•High import tariffs are proved to be a major barrier in trade for agricultural commodities and especially for developing economies.

•NTBs in both foreign and domestic market are also high which needs a special concern in agricultural sector and demands improvement in standardization and quality improvement through GAP, GMP and GHP.

•Various trade competitiveness indicators show that India has high competitiveness for rice and needs to be maintained