PROJECT REPORT ON AGRICULTURE FOREIGN TRADE IN INDIA

SUBMITTED BY:-KRISHAN KUMARROLL NO-11

INTRODUCTION

Agriculture is the dominant sector of Indian economy, which determines the growth and sustainability. About 65% of the population still relies on agriculture for employment and livelihood.

Indian agriculture however, has milestones. The green revolution transformed India form a food deficient stage to a surplus food market. In a span of 3 decades, India became a net exporter of food grains. Remarkable results were achieved in these fields of dairying and oil seeds through white and yellow revolutions. The sector could not however maintain its growth momentum in the post green revolution years, the strategic growth in agriculture and the accelerated growth in industry reversed the structure of national GDP in Indian economy.

Despite these major structural transformations, the agriculture sector continues to accommodate the major share of the workforce. The sector is prone to output fluctuations even after establishing better input facilities and technology like irrigation, High yielding seeds, changes in cropping pattern etc.

India is yet to emerge as significant trade partner in the world agriculture market. India holds around 1% of the global trade-in agricultural commodities. With the ongoing trade negotiations under the WTO, Indian Agriculture needs to reorient its outlook and enhance competitiveness to sustain growth from a demand side.

With India being a major negotiator on world agriculture trade, it can be expected that Indian agriculture trade will expand in the years to come. This process started with the India signing the Agreement on Agriculture (AOA) during the Uruguay Round. Now that the fourth Ministerial of WTO at Doha has mandated further negotiations on agriculture trade to improve market access India can look forward to a bright trade prospects in agriculture with proper policy support.

The Indian Agriculture Industry is on the brink of a revolution that will modernize the entire food chain, as the total food production in India is likely to double in the next ten years.

As per recent studies the turnover of the total food market is approximately Rs.250000 crores (US $ 69.4 billion) out of which value-added food products comprise Rs.80000 crores (US $ 22.2 billion). The Government of India has also

approved proposals for joint ventures, foreign collaborations, industrial licenses and 100% export oriented units envisaging an investment of Rs.19100 crores (US $ 4.80 billion) out of which foreign investment is over Rs. 9100 crores (US $ 18.2 Billion). The agricultural food industry also assumes significance owing to India's sizable agrarian economy, which accounts for over 35% of GDP and employs around 65 per cent of the population. Both in terms of foreign investment and number of joint- ventures / foreign collaborations, the consumer food segment has the top priority. The other attractive features of the indian agro industry that have the capacity to lure foreigners with promising benefits are the deep sea fishing, aqua culture, milk and milk products, meat and poultry segments.

Excellent export prospects, competitive pricing of agricultural products and standards that are internationally comparable has created trade opportunities in the agro industry. This further has enabled the Indian Agriculture Industry Portal to serve as a means by which every exporter and importer of India and abroad, can fulfill their requirements and avail the benefits of agro related buy sell trade leads and other business opportunities.

This Indian agro industry revolution brings along the opportunities of profitable investment and agriculture-industry-india.com provides you the B2B platform with agro related trade leads, exporters & importers directory etc. that help you make your way to profit easy.

To lead yourself to the destination of profit through the Indian Agriculture Industry, know maximum about the EXIM policy, programs & schemes, price policy, seed policy and statistics at the Indian agro portal and harvest benefits from India, world's second largest producer of food and a country with a billion people. From canned, dairy, processed, frozen food to fisheries, meat, poultry, food grains, alcoholic beverages & soft drinks, the Indian agro industry has dainty areas to choose for business.

PROBLEMS

Low Productivity:-

The low productivity in india is result of the following reasons:

According to "India: Priorities for Agriculture and Rural Development" by World Bank, India's large agricultural subsidies are hampering productivity-enhancing investment. Overregulation of agriculture has increased costs, price risks and uncertainty. Government interventions in labor, land, and credit markets are hurting the market. Infrastructure and services are inadequate.

Illiteracy, general socio-economic backwardness, slow progress in implementing land reforms and inadequate or inefficient finance and marketing services for farm produce.

The average size of land holdings is very small (less than 20,000 m²) and is subject to fragmentation, due to land ceiling acts and in some cases, family disputes. Such small holdings are often over-manned, resulting in disguised unemployment and low productivity of labor.

Adoption of modern agricultural practices and use of technology is inadequate, hampered by ignorance of such practices, high costs and impracticality in the case of small land holdings.

World Bank says that the allocation of water is inefficient, unsustainable and inequitable. The irrigation infrastructure is deteriorating. Irrigation facilities are inadequate, as revealed by the fact that only 52.6% of the land was irrigated in 2003–04, which result in farmers still being dependent on rainfall, specifically the Monsoon season. A good monsoon results in a robust growth for the economy as a whole, while a poor monsoon leads to a sluggish growth. Farm credit is regulated by NABARD, which is the statutory apex agent for rural development in the subcontinent.

PROSPECTS

. Presently a small percentage of farm produced processed in to value added products.

. India needs US $28 billion of investment to raise food processing level by 8-10%.

. Rapid urbanization, increased literacy, changing life style, more and more women in workforce, rising per capita income leading to rapid growth and new opportunities in food and beverages sector.

. Indians spend about 50% of household expenditure on food items.

OPPORTUNITIES

. Excellent export prospects, competitive pricing of agricultural products and standards that are internationally comparable has created trade opportunities in the agro industry.

. An average Indian spends out about 50% of his/her household expenditure on food items. With a population of over 1 billion and a 350 million strong urban middle class and their changing food habbits .

. The relatively low cost but skilled workforce can be effectively utilized to set up a large, low cost production base for domestic and export market.

. Foreign Direct Investment is not directly allowed in agriculture but there exist ample opportunities in related sectors.

. Biotechnology refers to the techniques that allow scientists to modify the DNA of crops to enhance their tolerance to pests and diseases, increase yields and improve quality and nutritional value.

Indian agricultural trade underwent significant changes in the post liberalization era. This book “Indian Agricultural Trade in the 21st Century” examines these changes in terms of production trends, trade patterns as well as policy initiatives. The various articles in the book trace the Indian agricultural evolution in a general perspective, and also track specific commodities in their trade patterns, with special focus on the post-1991 period. The articles in the initial section on agriculture in general help identify those commodities, which hold high export prospects, and track their progress in international trade. Trade policy initiatives are also examined in the light of trade facilitation in the country. Trade in food crops is determined by the domestic requirements, in order to ensure domestic food self-sufficiency and security. Hence, trade policies strike a balance between domestic pricing, demand, and external trade prospects. Agricultural Export Zones and trade in agriculture in the light of Sanitary and Phyto Sanitary measures of the WTO are also examined. The section on Horticulture and dairy products reveals the dominant position of India in fresh fruit and dairy production, and the huge export potential that remains to be tapped. Impact of trade liberalization on dairy farming is examined, besides looking at floriculture as a viable commercial option, in view of the growing international floricultural market. A recent phenomenon of terminal markets in fresh fruits is also examined. Export oriented perspective is being provided in articles on sea farming, and Indian fisheries, along with an economic analysis of shrimp farming in India. The final section discusses plantation crops, oilseeds and cash crops. Plantation crops are examined in view of their export potential with a special focus on the rubber industry in India. Oilseeds, an important contributor to India s foreign exchange, are examined in the light of the WTO regime. The last article deals with the cashew nut industry tracing its origin, growth and trade trends in India. Some of the recommendations of the National Commission on Agriculture to promote international trade are also examined.

STATUS OF THE SECTOR PRE-LIBERALISATION ERA

Before independence, Indian agricultural foreign trade was controlled by the British Government to serve colonial interests. India, which used to export a variety of valuable goods including fine variety of textiles, was forced to export only foodstuffs and agricultural raw-materials and import the manufactured goods from England. Indian farmers were made to produce raw-materials like cotton and jute for the British Factories. The domestic Textile industry was and India was compelled to import manufactured Textiles from England. In this colonial foreign trade regime, India was made to export more resulting in favorable trade balance with England.

Ten years after the World Trade Organisation (WTO) came into existence, and some 20 years after the holy grail of economic liberalization for more open markets and less government intervention in the developing world based on the idea that economies must grow if poor people are to reap the benefits of globalization, the tragedy is that the process of economic liberalization may already have set poor communities back a generation.2 No where has the negative impacts been felt more severely than in agriculture – the first line of defense against poverty. The role of agriculture is central to poverty eradication and removal of hunger and is fundamental to sustainable development and thereby ensuring global peace and political stability. As an overview, Mark Malloch Brown, former administrator of the UN Development Programme, decried the faulty economic prescription being doled out for reducing global economic inequalities. Releasing the Human Development Report 2003, he had stated:

“In the so-called great decade, a very significant hard core of countries ended further behind with more poor people.” Explaining the socio-economic debacle, he had said that fifty-four countries, almost half of them in Africa, were poorer than in the 1990s, and some will not meet the development goals for 50 years. The UNDP had earlier pointed out that before globalization became the buzz word, the richest fifth of the world’s population in 1960 were 30 times better off than the poorest fifth. By 1997, the figure had increased to 74. The impact on farming communities has been more pronounced --- the past decade saw rural livelihoods collapsing in the developing countries, leading to more unemployment and more migration from the rural to the

urban areas. Poverty and hunger multiplied thereby leading to further marginalization of the rural communities. Although many economists have now begun to concede that the relationship between economic liberalization and growth is uncertain at best,3 the fact remains that the world hasn’t learnt any meaningful lesson from the unethical dichotomy that prevails at the economic and policy planning level.

The liberalization of the Indian economy initiated during the early 1990s was launched with a view to accelerating agricultural growth by ending discrimination against agriculture. The idea was to turn the terms of trade in favor of agriculture through a large, real devaluation of the currency and increase in output prices of agriculture. The Economic Survey was in an upbeat mood, and predicted a substantial gain to India, running into billions of dollars from increased agricultural exports.4 such an exponentional growth was expected to have a significant impact on poverty reduction and thereby have a positive impact on livelihood security of hundreds of millions of rural poor.

STATUS OF THE SECTOR POST-LIBERALISATION

Table-2: Annual Compound Growth of Crop Area, Production and Productivity (Percent)

Crop 1980-81 to 1989-90 1990-91 to 2000-01

Area Production

Yield

Area Production

Yield

Rice&Wheat 0.43

3.59

3.15

0.84

2.27

1.42

Rice 0.41

3.62

3.19

0.63

1.79

1.16

Wheat 0.47

3.57

3.10

1.21

3.04

1.81

Coarse Cereal

-1.34

0.40

1.62

-1.84

0.06

1.65

Pulses -0.09

1.52

1.61

-1.20

-0.58

0.27

Total Foodgrains

-0.23

2.85

2.74

-0.20

1.66

1.34

Non-Food Crops

1.12

3.77

2.31

0.84

1.86

0.59

Oilseeds -1.51

5.20

2.43

0.44

0.66

0.61

Sugar Cane 1.44

2.70

1.24

1.72

2.62

0.89

Cotton -1.25

2.80

4.10

2.21

0.92

-1.26

All Crops 0.10

3.19

2.56

0.08

1.73

1.02

. India is looking for investment in infrastructure, packaging and marketing.

. India- one of the largest food producers of the world .

. The Indian scientific and research talent had boomed up after liberalization because of various MNC are investing bid money in R&D.

Numerous studies have shown that the sector that has the most beneficial effect on poverty reduction is agriculture. Considering that agriculture is a major sector for India, accounting for 38 per cent of the Gross Domestic Product (GDP) in 1980, declining but still remaining at a significant 27 per cent, and accounting for 62 per cent of employment even in 1998, any significant growth in agriculture is not only viewed as a means towards food security, but as a strategy to achieve the broader goal of poverty eradication. After all, for a country which alone has over 600 million farmers, sustainable agriculture is the only means to provide viable livelihoods. Nearly 15 years after ushering in of economic liberalization, instead of experiencing an unprecedented boom in growth, the agricultural sector is faced with a serious crisis. This is reflected in a significant deceleration of growth rate of agriculture, both in terms of gross product and in terms of output. Taking the output of the crop sector alone, as compared with a growth rate of 3.5 per cent during the 1980s, the growth rate of agricultural output decelerated to only 2.37 per cent per annum during the 1990s. This was the lowest growth achieved during any period.5 It has now slumped still further, reaching an abysmal low of 1.5 per

cent in 2004-05. The alarm bells have been ringing for quite some time. The spectacular yield growth recorded in the post-Green Revolution years in Punjab and Haryana have receded into history. Among the multiplicity of problems confronting agriculture, rapid fragmentation of land holdings is keeping pace with increasing population. In 1976-77, the average size of the holdings was estimated at two hectares, and in 1980-81, it came down to 1.8hectares. Today, it stands at a mere 1.47 hectares. The number of land holdings in 1981 were around 89 million, today these have crossed 110 million. As intensive farming began to bare its fangs, mining the ground water, and destroying the soil fertility, sustainable livelihoods began to fall apart. At the same time, by the turn of the century, per capita food grain availability had dropped to an abysmal low of 152 Kg, nearly 23 kgs less than early nineties.6 This compared favorably with the stark hungerThat prevailed in sub-Saharan Africa, and was no better than the crisis-laden foodsituation that existed at the time of the Bengal Famine. Green revolution had not only gone sour, it has now turned red. The unexplained number of huge number of farmer suicides is a testimony to the entire equation going wrong.7 The philosophy of agricultural planning is changing.8 Gone are the days when theNation’s emphasis was solely on attaining self-sufficiency in food grain production. Gone are the days when a set of policy mix helped keep hunger and sure starvation at bay. At the beginning of the new millennium, at a time when food production struggles to barely keep pace with the burgeoning population growth, farmers are being asked to diversify, produce crops that are suitable for export and to compete in the international market. With promise of cheap food available off the shelf in the global market, the focus has shifted from agriculture to industry, trade and commerce, from the small and marginal farmers to the agri-processing companies. Cultivation of staple food is being replaced by cash crops, tomatoes in place of wheat, durum wheat (for bakery purposes) replaces wheat as a staple diet in Punjab and Haryana, flowers in place of rice, and so on. In the coastal areas, private enterprise isntaking away the fish catch depriving the local communities of a livelihood and the only nutrition source. In Kerala, for instance, vast tracts of forests and paddy fields have been converted into rubber, coffee and coconut plantations. Commercial crops are eating into the fertile land tracts meant for growing essential food grains. The diversion of good agricultural land, which in any case is limited, to commercial farming and even industries, is further exacerbating the crisis in sustainability. WTO’s Agreement on Agriculture and other trade liberalization measures have not only shifted the focus to export-oriented cash crop agriculture but also opened the door to cheap imports in the

developing countries, and India is no exception. Cheap food imports depress prices for domestic produce, and large scale cash crop cultivation has not onlyShifted land away from basic food production but has led to concentration of land and resources in the hands of big farmers, landlords and private companies. It also accelerates the depletion of the natural resource base. Meanwhile, withdrawal of state subsidies and institutional support to agriculture has pushed up production costs and supplies of agricultural inputs.

All this has led to marginalization, displacement, loss of land and greater poverty among small farmers. Many small farmers have become daily wage workers, receiving low wages. Others have migrated to urban centers in search of menial jobs, often leaving an extra burden (of farm as well as domestic work and the responsibility of looking after the family) on women. In other words, economic liberalization is not only impacting food security at the household level but also impacting the sustainability of livelihoods. Unlike the conventional growth and ‘trickle-down’ assessment approach, where human lives are portrayed as mere economic figures, the sustainable livelihoods approach emphasizes assessing community’s assets and strengths. Agriculture in India therefore is facing multiple challenges. It needs to become more productive to meet the growing need for food and, it has to provide income and employment for the rural population so as to reduce migration and combat the inequalities and poverty.9 At the same time, agriculture has also to maintain the balance between enhanced production, sustainable use of natural resources and environmental degradation. In addition, because of declining efficiency of inputs, the profit margin of farmers is declining very sharply. Many farmers have been squeezed between the rising costs of key inputs (as subsidies have been phased out) and unsure market for theirproduce, because of the diminishing role of the procurement agencies.

FUTURISTIC ASSESMENT OF THE SECTOR

. Crop land 100,000 to 1.8 MN HA .

. Long term rate sustainability 2005-06.

. Yield growth in vegetable sector at 6 % per year.

. Annual rate og increase in Crop Area at around 0.5%.

Agricultural commodity futures are market based instruments for managing risks and orderly establishment of efficient agricultural markets. These are used to hedge commodity price risks. The hedging and price discovery function of the future markets promote more efficient production, storage, marketing and agro-processing operations and help in improving overall agricultural marketing performance. Commodity trading is just one step in solving the complex Indian agriculture problems. Although formalized future trading in agricultural commodities has been in place since 1918-19, the future trading in commodity through commodity exchanges came to its own very recently. But the trade was mostly in the form of forward contracts. Although India has a long history of trade in commodity derivatives, this sector remained underdeveloped due to government intervention in many commodity markets to control prices. Free trade in many agricultural commodities is restricted under the Essential Commodities Act (ECA)-1955 and Agriculture Produce Marketing Committees Act (APMC) of various states. The forward and futures Contracts till April 2003, was limited to only a few commodities items under the Forward Contracts Regulation Act (FCRA)-1952. However, in 2003 Government of India removed all restrictions on commodities which could be traded on commodity exchanges. At present 25 commodity exchanges are in operation in India carrying out futures trading in as many as 81 commodity items. Most of these exchanges are regional and commodity specific. National Multi Commodity Exchange (NMCE) status has been accorded to four commodity exchanges, namely, National Mutli Commodity Exchange (NMCE) Ahmedabad, National Board of Trade (NBOT), Indore, National Commodity Derivative Exchange (NCDEX) Mumbai and Multi Commodity Exchange (MCX) Mumbai during 2003. These exchanges have excellent financial backing, demutualised ownership structure and more transparent electronic trading system. The Forward Markets Commission (FMC) established under FCRA-1952 is the agency which regulates commodity derivatives trading in India in the same way as SEBI does for securities markets.

In some areas farmers are gradually getting aware of futures prices which are disseminated through exchanges. In the capital market, spot market developed before the derivatives market which made the things easier. In the commodity space, the derivatives have come before the so called integrated spot market. Future market is a boon to the farmers. Under the prevailing scenario,

Commission for Agricultural Costs and Prices (CACP) recommends Minimum Support Prices (MSP) with no guarantee that farmers will get that price. Generally, MSP acts as the maximum price that is paid to farmers. Open-ended purchase could continue to be made at MSP as floor price, exchanges should be able to offer market based options at strike prices higher than the MSP. Be able to offer market based options at strike prices higher than MSP. Budget fails to meet the expectations of participants in the commodity future markets as the needed reforms facilitating the growth of commodity markets have been avoided. Introduction of Commodity Transaction Tax (CTT) on line with Securities Transaction Tax (STT) is a negative move for the commodity market when market is still evolving seeking larger participants and volumes. Moreover, the long and short term capital gains benefits extended to securities market has not been extended to commodities trading. On the other hand, the decision is significant in the wake of commodities markets regulator to institutionalize the development of market mechanism, support institutions capacity building and development of strong forward and backward linkages between market, producers, traders and consumers and the Forward Markets Commission receiving more autonomy to deal efficiently with the challenges facing the commodities futures markets with the approval of Forward Contracts (Regulation) Act, and Foreign Direct Investment (FCI)/ Foreign Institutional Investors’ (FII) Investments in commodities sector.

It showed an increased interest of the government in expanding the commodity futures markets in line with the equity markets. Securities markets are eight times larger than the commodities market and hence the levy is premature. The functioning of securities markets is different from that of commodities markets. Commodities markets are global asset class and trade flowed to the most efficient markets that bore the least cost of trading. Commodity markets are still in the nascent stage (4years old) and a fraction of the size (1/5th) of the securities markets. It would increase the cost of trading by at least four times. Future trading in wheat, rice, tur and urad had already been suspended by the FMC. Efficient functioning of futures markets pre-supposes the existence of efficient spot markets. Currently, physical spot markets have large numbers of infirmities. It will be difficult for the futures markets to function till these are removed. Commodity markets in India need structural changes for increasing depth and curbing of speculative activity. Banks, FIIs and other institutions should be

permitted to trade in the commodity markets. National Commodity spot markets need significant legislative and administrative support for taking off. Banks, FIIs and other institutions should be permitted to trade in commodity markets. Commodity options need to be developed. The setting up of national electronic exchanges by the national commodity exchanges is an attempt to create a national integrated market. The vibrant agriculture markets including derivatives markets are the frontline institutions to provide early sign of future prospect of the sector. Vibrancy in these markets gives signal about commodities which deserves flow of investment. All the regulators operating within the commodity markets scope work in cohesion.