FROM COMPETITION AT HOME TO COMPETING ABROAD: A CASE STUDY OF INDIA’S HORTICULTURE Aaditya Mattoo,...
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Transcript of FROM COMPETITION AT HOME TO COMPETING ABROAD: A CASE STUDY OF INDIA’S HORTICULTURE Aaditya Mattoo,...
FROM COMPETITION AT HOME TO COMPETING ABROAD:
A CASE STUDY OF INDIA’S HORTICULTURE
Aaditya Mattoo, Deepak Mishra, Ashish Narain
THE WORLD BANK
India is among the largest producers of
horticultural products
Production (million MT)
64 5624
5 3
149
7635
6 5
502
127
448 7
0
100
200
300
400
500
600
China India Brazil SouthAfrica
Chile
1980
1990
2004
Source: UN COMTRADE, 2005
Yields are still low by international standards
Source: UN COMTRADE, 2005
Fruits
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
China India Brazil SouthAfrica
Chile
1990 2004
Vegetables
0
50,000
100,000
150,000
200,000
250,000
300,000
India SouthAfrica
Brazil China Chile
1990 2004
(Yields per Hectare)
India is a relatively low cost producer / exporter …..
1,188
669
805
455 455 463
911
227189
863
630
444
316 288222
175 15591
-
200
400
600
800
1,000
1,200
1,400
Fresh grapes Peas, freshor chilled
Guavas,mangoes andmangosteens
Bananas,includingplantains,
fresh
Lemons andlimes, fresh
or dried
Apples, fresh Tomatoes,fresh orchilled
Onions andshallots,
fresh or chill
Otherpotatoes,fresh orchilled
World
India
Average Price in $/MT (2001-03): India vs. World(Price prevailing at the originating ports)
Source: UN COMTRADE, 2005
…but it has an insignificant share in global trade
Source: UN COMTRADE, 2005
0.5%
0.2%
0.2%
0.5%
10.8%
0.2%
0.1%
0.9%
11.1%
2%
2%
7%
8%
10%
12%
21%
22%
38%
Grapes
Apple
Tomato
Potato
Onion
Lime/lemon
Banana
Peas
Mango
India's share in global production and exports
Production
Exports
Methodology
• Supply chain analysis of 10 horticultural products from farm to retail
• Based on primary surveys that covered 1400 farmers, 200 commission agents, 65 exporters across 16 major Indian states
• Detailed interviews with major stakeholders
Commodities Surveyed
Apple , 60
Banana, 100
Grapes, 98
Mango, 110Mosambi, 102
Okra, 106
Onion, 100
Peas, 95
Potato, 101
Tomato, 100
Vegetables
Fruits
Source: Value Chain Survey, The World Bank
States Covered
Assam, 81Bihar, 20MP , 113
Orissa, 80
Rajasthan, 54
UP , 150
AP , 74
Karnataka, 45WB, 40 Gujarat, 140
Haryana, 126
Maharashtra, 192
HP , 20J K, 20
Uttaranchal, 40
P unjab, 98
TN, 80
High Income
Middle Income
Low Income
Source: Value Chain Survey, The World Bank
Main finding: Logistics and intermediation costs are much higher than production costs
Source: Value Chain Survey, The World Bank
Farmer, 13.5Intermediary, 5.4
Exporter, 24.2
International freight & insurance, 53.6
Importer, 23.5
0
20
40
60
80
100
120
1Different stages of the supply chain
Rs
per
Kilo
gram
Farmgate price=Rs.13.5
Retail price=Rs.120.3
CIF price=Rs.96.8
FOB=Rs.43.2
Wholesale price=Rs.18.9
Factors Impeding India’s Exports A Combination of External and Domestic
Factors
High Cost of Delivery between the Farm-gate and Retail (in the Foreign Market)
High Transport Costs (Inefficiencies in specific modes of
transport)
Inefficiencies in Domestic Logistics and Intermediation
Tariffs Abroad, Quality and Standards
Geography mattersUnited State's Imports
0%
5%
10%
15%
20%
25%
30%
35%
0 2000 4000 6000 8000 10000 12000 14000
Distance in Kms.
Sha
re o
f US
impo
rts
(in %
)
Mexico
Chile
EcuadorCanada
NZ
Costa Rica
Guatemala
ColombiaHonduras
Peru
Tw o neighborsaccount for almost
45% its imports
Another 50% is accounted byselect Cairns
group countries
Source: UN COMTRADE, 2005; CEPII
Geography mattersEU's Imports
0%
3%
6%
9%
12%
15%
0 2000 4000 6000 8000 10000 12000 14000
Distance in Kms.
Sha
re o
f EU
impo
rts
(in %
)
Spain
Chile
Ecuador
Belgium
NZ
Costa Rica
Germany
Colombia
Cameroon
Exports by 6 membercountries account for50% of total importsNetherlands
France
Italy
South Africa
Brazil
Panama
Another 25% is accounted byselect Cairns group countries
Source: UN COMTRADE, 2005; CEPII
India exports mostly to proximate markets
10%
29%
17%
34%
7%
1% 1%
y = -0.1478Ln(x) + 1.3872R2 = 0.8235
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
0 2000 4000 6000 8000 10000 12000 14000
Distance in Kms.
South Asia
Middle East
East Asia
Western Europe
Rest of the World
Africa US and Canada
India
Source: UN COMTRADE, 2005; CEPII
But successful exporters like Chile have broken the ‘distance’ barrier
28%
9%
14%
18%
6%
24%
1%
y = -0.0141Ln(x) + 0.2697R2 = 0.0126
0%
10%
20%
30%
40%
0 4500 9000 13500 18000
Distance in Kms.
Latin America
Middle East
East Asia
Western Europe
Rest of the World
Africa
US and Canada
Chile
Source: UN COMTRADE, 2005; CEPII
India’s international transport costs are higher than those of competing countries
655476
1338
874
167 88
649 958
315
785
505479
0
200
400
600
800
1000
1200
1400
1600
1800
Pakistan India Chile India Netherlands India
Difference in the pricebetw een originating port andthe destination port (Specif iccountries)
Price at the originating port(All countries)
Mango UK ($/per MT)
PotatoSaudi Arabia ($/per MT)
GrapesNetherlands ($/per MT)
Source: UN COMTRADE, 2005
Transport costs as a barrier ranks high in the exporters’ perception
Barriers to Export
4.3
5.0
5.4
6.0
6.1
6.1
6.2
6.7
0 1 2 3 4 5 6 7 8 9 10
Anti-dumping issues
Volatility of demand
Lack of Indian brand name
Competition from others
Non-tariff barriers
P ayment problems
High custom duty
International trasport cost
Index measuring the magnitude of the barrier[0= Not a barrier; 10= Most critical barrier]
Source: Value Chain Survey, The World Bank
Air Transport
• Costs are high because of
– Excessively high taxes on fuel and airport charges
– Restrictions on ownership and entry– Inadequate and under-utilized infrastructure (A Road Map for the Civil Aviation Sector, GoI)
• Imbalances between exports and imports (to Europe and North America)
Maritime Trade
• Inefficiency of ports is a bigger problem than inadequate capacity
• Maritime sector faces the following challenges to improving performance (10th Five Year Plan, GoI):
– Delays in project implementation– Inflexible functioning of major ports– Lack of multi-modal transport – Cost-plus tariff policy
Surface Transport
• Road transport – Cost is not high in nominal terms but is high in
effective terms (including wastage, storage, and handling)
– Travel speeds are low (only about 200-400 km per day)
– Movement of containers on the Indian roadways is limited
– Refrigerated trucks are few and expensive
• Rail rates in India are very high in relation to costs
Variation in prices reflect segmentation of the domestic market
Difference in prices between the cheapest and the most expensive city for different commodities
127% 138% 141% 145% 149% 160% 172%188%
234%252%
0%
50%
100%
150%
200%
250%
300%
Banana Oranges P otato Onion Grapes Okra Apples Mango GreenP eas
Tomato
3.1 4.2 4.5 4.4 4.9
10.9
5.78.2
15.6
32.1
0
5
10
15
20
25
30
35
Mumbai Hyderabad Kolkata Bangalore Chennai
Transportation costsplus handling charges from Delhi (Rs. per Kg)
Difference in the wholesale price from Delhi (Rs. per Kg)
Apple -2002
High wastage reflects inefficiencies in the delivery chain
4%
7%6%
4%
8%6%
8% 8% 9% 9%
14%2%3%
2%
2%
2% 1%
5% 4%
2%
1%2%
1% 2%
2%
2% 2%
1% 2%
2%
2%
2%
3%
1%
2%
1%
1%
3%
0%
5%
10%
15%
20%
From the farm-gate to local mandi
Wastage withinthe district
Wastage withinthe State
Wastage outsidethe State
Fragmented and Costly Supply Chain
Producer / Farmer: Price Rs. 2.00; Wastage: 20%
Consolidator: Price: Rs.2.20; Wastage: 8%
Market Wholesaler: Price Rs. 2.50; Wastage: 5%
Semi-Wholesaler: Price Rs. 3.33; Wastage: 5%
Retailers: Price Rs. 8.20; Wastage: 10%
Source: S. Raghunath and D. Ashok; June 2004 (IIM- Bangalore)
Commodity- Tomato; State - Karnataka
Inter-play of the Constraints
High transport costs
Inefficiencies in domestic logistics and Intermediation
Lack of predictability and small scale
Ongoing and Prospective Reforms
• Create contestable markets where it is possible to exploit economies of scale in transport, marketing and distribution
• Eliminate barriers to entry and competition at all stages
–APMC Act • Eliminate barriers to attainment of efficient scale
–Small scale reservation on cold storage–Restriction on multi-state cooperative–Impediments to large-scale retail
External Factors: Trade and Non-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
External Factors: Trade and Non-Trade Barriers
EU: Tariff rate for Fresh Lemon (8 digit HS Code) - May 2004-Apr 2005
0
5
10
15
20
25
30
35
Import price (in Euro per 100 Kg)
May 2004
Nov-Apr 2005
Sep-Oct 2004
Aug 2004
J un-J uly 2004
External Factors: Standards
•Mandatory official standards are becoming less important than quality standards imposed by buyers
•Standards are also an opportunity
•Eliminate protection in foreign markets through international negotiations
Manifestation of rising standards on Indian exports
0%
0%
0%
0%
0%
3%
8%
10%
19%
24%
35%
0% 5% 10% 15% 20% 25% 30% 35% 40%
one/periodic rejection by external buyer
one/periodic rejection by external official agency
ban/temp ban on exports by Indian authorities
ban/temp ban on imports by foreign authority
other
one/periodic rejection by Indian authorities
frequent product rejection
reduced price from buyer
warning from buyer of official agency
cut back in orders from important buyer
no response
Benefits of Reform
• Increase in farmers’ shares of the benefits of trade
• Enhanced international competitiveness of Indian agriculture