FROM COMPETITION AT HOME TO COMPETING ABROAD: A CASE STUDY OF INDIA’S HORTICULTURE Aaditya Mattoo, Deepak Mishra, Ashish Narain THE WORLD BANK

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


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)


…but it has an insignificant share in global trade


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


Main finding: Logistics and intermediation costs are much higher than production costs


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


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


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


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)


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]


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

Documents

FROM COMPETITION AT HOME TO COMPETING ABROAD: A CASE STUDY OF INDIA’S HORTICULTURE Aaditya Mattoo, Deepak Mishra, Ashish Narain THE WORLD BANK