HOW TO JUDGE

COMPETITIVENESS OF INDIAN
AGRI-BUSINESS?

Globalizing Indian Business

 OVERVIEW
 LACK OF CONSISTENCY OF INDIAN
EXPORTS LEADING TO LACK OF A
CONSISTENT FRAMEWORK
 MEANING & INDICES OF
COMPETITIVENESS
 INTRODUCING DRCR & EDRCR CONCEPTS
 MEANING OF INTEGRATED BIO-MASS USE:
EXAMPLE OF RICE
 MAJOR CONCERNS
 LACK OF CONSISTENCY
 STILL AN INSIGNIFICANT PLAYER
 LARGE FLUCTUATIONS IN
QUANTITY FROM YEAR TO YEAR
 RESIDUAL SUPPLIER IN MOST
AGRIBUSINESS PRODUCTS
 FAILURE TO ACHIEVE STEADY
INCREASE IN UNIT VALUE
REALISATION
 WHAT TYPE OF
COMPETITIVENESS ?
 EXPORT COMPETITIVENESS: Competing
with a rival country product in a foreign
market, and hence to minimize both
transformation and transaction costs for given
or even better quality
 IMPORT COMPETITIVENESS:
Competing with a rival country product in
domestic market, and hence rival has to worry
about minimization of transformation and
transaction costs for given or even better quality
 WHOSE VIEWPOINT TO
BE TAKEN ?
 AN ISOLATED TRADER’S ?
 A TRADER-CUM-
PROCESSOR’S ?
 A TRADER-CUM-
PROCESSOR-CUM-
PRODUCER’S ?
 COMPETITIVENESS
MEASURES
 NOMINAL PROTECTION COEFFICIENT
(NPC): Comparing border price with domestic
price
 EFFECTIVE PROTECTION COEFFICIENT
(EPC): NPC with correction for effects of
tariffs/subsidies on tradable inputs
 EFFECTIVE SUBSIDY COEFFICIENT (ESC):
NPC with correction for effects of tariffs/subsidies
on both tradable & non-tradable inputs
 LIMITATIONS OF
TRADITIONAL MEASURES

 LACKS SOCIAL PERSPECTIVE

 IGNORES INTEGRATED BIO-MASS

USE
 INTEGRATED BIO-MASS
USE: EXAMPLE OF PADDY
 FULL RICE
 BROKEN RICE
 STRAW USABLE AS FEED OR
STRAWBOARD
 RICE BRAN OIL & RESIDUAL AS
NUTRIENT
 BURN RICE HUSK TO PRODUCE
POWER & FURFURAL
DRCR IN POLICY ANALYSIS
MATRIX (PAM) STRUCTURE
 Items Outputs Inputs Net Result
T NT T NT
D.Cost A B C D PAI=A+B-C-D

Border
Price E - G -
Econ
Price - F - H SPAI=E+F-G-H

----------------------------------------------------
Transfer A-E B-F G-C D-H T=A+B-C-D
-E-F+G+H
 MEANING OF DRCR
 DRCR = (H-F)/(E-G) = Domestic Resource Cost for producing
one dollar of foreign exchange
 SPAI=(E-G)[1-DRCR] => Social Profitability>0 when DRCR<1,
provided E-G>0
 If SPAI=0, then DRCR=1
 If DRCR=0, then SPAI=E-G>0 => no value-addition from non-
tradable inputs; only from tradable inputs
 Even if E-G<0, 1>DRCR>0 and thus SPAI>0 if H-F<0 => value
addition thro’ non-tradable route can more than offset negative
value addition thro’ tradable route
 Even when DRCR<0 in the face of H-F<0 – i.e., there’s positive
value addition thro’ non-tradable route, besides E-G>0 – i.e.,
value-addition thro’ tradable route, SPAI can still be positive
 ADVANTAGES OF DRCR
METHODOLOGY
 DIVIDES NOT ONLY INPUTS BUT ALSO
OUTPUTS INTO TRADABLES & NON-
TRADABLES
 LOOKS AT ECONOMIC PRICE OF BOTH
TRADABLES & NON-TRADABLES
 PERFORM SENSITIVITY ANALYSIS
TO IDENTIFY POLICY PARAMETERS &
ACTION POINTS AT INTERNATIONAL,
NATIONAL & ENTERPRISE LEVELS
 Need for Extended DRCR
Analysis
Global market distortions: Failure of price to include
environmental costs
 Intensive industrial system of livestock
production tend to be geared towards single
traded output rather than multiple outputs, as
in extensive grazing or integrated crop-
livestock system
 Leading to environmental loss sooner or later,
which must be borne by a third party (often the
world at large, e.g., the greenhouse effect)
 All livestock producers wrongly
castigated for environmental
problems?
 Total economic value must include:
– Direct use value (livestock products, landscape amenity)
– Ecological function value (nutrient cycling, favoring
seed germination)
– Option value (animal genetic diversity)
– Existence value (satisfaction that herbivores are there)
 High time to apply efficient & sustainable resource
pricing policy incorporating the two principles:
– Polluter/user pays
– Beneficiary compensates
 Calculation of Extended DRCR (EDRCR)
using a Policy Analysis Matrix (PAM)
Item Value of Outputs Value of Inputs Surplus

T NT NT’ T NT NT’

1. Domestic A B E1 C D E2 PAI = (A+B+E1)-(C+D+E2)

Prices
1. Economic
Prices

a. Border E _ _ G _ _ INTPAI = (E+B+E1)-(C+D+E2)

Prices

a. Opportunity _ F E3 _ H E4 SPAI = (E+F+E3)-(G+H+E4)

Cost

1. Policy A-E B-F E1-E3 G-C H-D E4-E2 T= (A-E)+(B-F)+(E1-E3)+(G-C)

Transfers +(H-D)+( E4-E2)
= PAI-SPAI
 Extended DRC (EDRC)
calculations for Chilean Export
Industries, 1996

DRC/EDRC Fishmeal Pulp Refined copper

DRC 0.65 0.11 0.18

EDRC 0.97 0.25 0.46

 Will the importer or the exporter bear the

environmental cost?
Incidence of a Specific Environmental
Tax
Burden of tax t is shared by the seller/exporter
Price and the buyer/importer, depending upon theirS’
relative bargaining positions

Pb The burden of tax will fall more

A on the exporter if he has little
B
P0 market power & the importer has
t C more market power
D
PS

D
Q1 Q0 Quantity
 Global Trends in Wheat – Production,
Consumption, and Trade
World Wheat Trade

650.0

600.0

550.0

500.0

450.0

400.0
Wheat market is a thin market, with 16%
Million Tons

350.0

300.0
of production being traded, and large
250.0 stocks, fluctuating between 25-35% of
200.0 total consumption
150.0

100.0

50.0

0.0
1976/77

1978/79

1982/83

1984/85

1987/88

2001/02

2003/04
1977/78

1979/80

1980/81

1981/82

1983/84

1985/86

1986/87

1988/89

1989/90

1990/91

1991/92

1992/93

1993/94

1994/95

1995/96

1996/97

1997/98

1998/99

1999/00

2000/01

2002/03

2004/05
Year

Production (Rough) World Trade Total Consumption

 Global Trends in Coarse Grains –
Production, Consumption, and Trade
World Coarse Grains Trade

1100.0

1000.0

900.0

800.0

700.0
Million Tons

600.0

500.0

400.0

300.0 Coarse grains market is a thick market, with approx.

200.0 66% of production being traded, but also having large
100.0 stocks fluctuating between 15-35% of production
0.0
1976/77

1979/80

1990/91

1992/93

1993/94

1998/99

1999/00

2001/02
1977/78

1978/79

1980/81

1981/82

1982/83

1983/84

1984/85

1985/86

1986/87

1987/88

1988/89

1989/90

1991/92

1994/95

1995/96

1996/97

1997/98

2000/01

2002/03

2003/04

2004/05
Year

Production (Rough) World Trade Total Consumption

 Global Trends in Rice – Production,
Consumption, and Trade
World Rice Trade

650.0

600.0

550.0

500.0

450.0

400.0
Million Tons

350.0

300.0

250.0

200.0
The Global Rice Market is a thin market, with barely 4-5%
150.0

100.0
of production being traded, and large stocks, fluctuating
50.0 between 20-40% of total consumption
0.0
1976/77

1978/79

1982/83

1984/85

1988/89

1989/90

1998/99

1999/00
1975/76

1977/78

1979/80

1980/81

1981/82

1983/84

1985/86

1986/87

1987/88

1990/91

1991/92

1992/93

1993/94

1994/95

1995/96

1996/97

1997/98

2000/01

2001/02

2002/03

2003/04

2004/05
Year

Production (Rough) World Trade Total Consumption

 Rice Market Dominated by 6
Large Producers
Rice Exports of Top 6 Exporters 00-01 to 04-05

30,000
28,750
27,500
26,250
25,000
23,750
22,500
21,250
20,000
18,750 China
Exports in '000 tons

India
17,500
Pakistan
16,250
Thailand
15,000
Vietnam
13,750
United States
12,500
Top 6 Exporters Total
11,250
World Total
10,000
8,750
7,500
6,250
5,000
3,750
2,500
1,250
0
2000-01 2001-02 2002-03 2003-04 2004-05 (Nov)
Year
India’s Basmati & Non-Basmati Exports
– Quantity Terms India's Basmati & Non-Basmati Exports (Tons)

5000000
4750000
4500000
4250000
Steady growth
4000000 in Basmati
3750000
3500000 exports…
3250000
3000000
Tons of Rice

2750000
Basmati Exports (Tons)
2500000
Non-Basmati Exports (Tons)
2250000
2000000
1750000 …but huge
1500000
1250000 fluctuations in
1000000
750000 non-Basmati
500000
250000
exports…a
0 RESIDUAL
1996-97

1997-98

1999-00
1989-90

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1998-99

2000-01

2001-02

2002-03
SUPPLIER?
Year
 India’s Basmati & Non-Basmati
Exports – Value Terms
India's Basmati & Non-Basmati Exports (Value)
Large
500000
fluctuations in
450000
exports of non-
400000
Basmati in
350000 value terms as
well
Lakhs of Rupees

300000

Basmati Exports (Value)

250000
Non-Basmati Exports (Value)

200000

150000

100000

50000

0
1991-92

1994-95

1997-98

1999-00

2000-01
1989-90

1990-91

1992-93

1993-94

1995-96

1996-97

1998-99

2001-02

Year 2002-03
 Unit Value Realization in Basmati
& Non-Basmati Exports Unit Value Realization from India's Basmati & Non-Basmati Exports

40
Unit value
35 realization
increased 3.5
times for
30

Basmati…
Unit Value (Rs./kg)

25

Basmati Unit Value Realization

20
Non-Basmati Unit Value Realization

15
…but the same
10
for non-Basmati
has barely
5
increased by
0 50%
1989-90

1991-92

1995-96

2002-03
1990-91

1992-93

1993-94

1994-95

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

Year
 Summing up - India’s Position in
World Rice Trade
India's Position in World Rice Trade
Factor 1: India is an
40.00
unreliable (residual)
35.00 exporter, with large
30.00
fluctuations in
quantity exported of
25.00 non-Basmati.
% age

India's Share of World Rice Trade (%age)

20.00
%age of India's Production Exported

15.00
Factor 2: Unit value
10.00
realization for non-
Basmati increasing at
5.00
a snail’s pace – barely
0.00 50% increase over 13
1992-93

1993-94

1994-95

2001-02

2002-03
1989-90

1990-91

1991-92

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

years
Year
 Change in Direction of Exports of
Indian Basmati & Non-Basmati
Rice
Direction of Exports of Basmati Rice: Sep 02-Aug 03 Direction of Export of Basmati Rice: Sep 03-Apr
04
Others
5.4 2.09 2.64
Yemen
8.74
U.A.E.
S.Arabia
Kuwait
Kuwait
U.A.E.
S Arabia Yemen
Kuwait Others
81.12 S.Arabia
UK-Holland
UAE
Others

Direction of Exports of Non-Basmati Rice: Sep Direction of Exports of Non-Basmati Rice:Sep 03-
02-Aug 03 Apr 04
24.16 24.29

0.68
Nigeria
Nigeria
R Africa Kuwait
2.71
Others Kuwait
2.06 7
15.05 S Africa S.Arabia
23.26 Nigeria U.A.E

S Arabia Bahrain Bahrain

S.Arabia
Others
UAE U.A.E
Iran
 INTEGRATED BIO-MASS
USE: EXAMPLE OF PADDY
 Tradable:
- Full rice of standard quality
 Non-tradables:
- Broken rice
- Straw usable as feed or strawboard
- Rice bran oil & residual as nutrient
- Burn rice husk to produce power &
furfural
 Case of Indian Rice
 Traditional measures by Gulati et al:
Much below unity
 DRCR measures of Maji(1996):

As low as 0.094
 Our DRCR estimates for 1998-99:

Basmati: 0.38, Haryana Gaurab: 0.32

UP 71/12: 0.23, PR-106: 0.31
 So, why not maximum
exports?
INTERNATIONAL MARKET CONSTRAINTS

 Trade in Residual Supply
 Thin International Market
 High Price Volatility
 High Search and Transaction Costs
 Non-Homogenous Commodity
 Inefficient Allocation of Resources
 Non-tariff Barriers (NTB) e.g., Cumulative
Recovery System
 Created Distortions in Rice
Market

 “Given that the US is relatively less competitive in rice

than other countries like Thailand, Vietnam, and India,
the adjustment to low prices would ideally have been
borne by US farmers.”
 “US domestic rice policies have the effect of deflecting
the shock of low prices back to the international
market” Source: Gulati & Narayanan, EPW, Dec.28, 02
Segmentation of World Market
 Japonica => US, Australia & China
 Indica (Africa) => India, Thailand
 High-quality (EU) => South Asia, US
 Basmati (W. Asia) => South Asia
 Paddy (S. America) => US
 Indica = 75-80%
 Japonica = 10-12%
 Basmati & Jasmine = 10%, Glutinous = rest
 OTHER CONSTRAINTS
 
Serious supply constraints at home
 Killing the domestic market?
 Quality barriers & example of Thai
Rice Inspection Committee   
Advantages of Thailand vis-
a-vis India or Vietnam
 Thai traders offer quality rather than price
competitiveness
 Thailand concentrating on quality niche
market, growing at a much faster rate
 Thailand is monopoly supplier of 100%
grade rice
 As member of ASEAN, Thailand has
preferential access to fellow member
country markets
 Unique Features of Thai
Rice Exporters
 Not fly-by-night operators: required to
fulfill strict criterion to get license to export
 Sincere & trust-worthy: never failing to
execute contracts
 Perfect match between delivered materials
& approved samples
 Perfectly competitive conditions maintained
within trade
 Inspection Procedures of Thai
Rice Inspection Committee (RIC)
 1. Exporter license clearance at
Ministry of Commerce for every
consignment takes 15 minutes.
 2. Copy of license sent to RIC.
 3. Inspection of 10% sample from
every consignment before loading.
Another sample in sealed envelope
rechecked in RIC laboratory
 Inspection Procedures of Thai
Rice Inspection Committee (RIC)
4. Loading stopped & entire lot
reprocessed in case of deficiency.
Certificate of quality and weight
issued for shipment only after
confirmation of quality at laboratory.
5. Sealed sample rechecked in case
complaints. In last 18 years, only 2
such cases of complaints.
 Inspection Procedures of Thai
Rice Inspection Committee (RIC)
 6. Provision for renegotiation,
arbitration & compensation in case
of confirmed importer complaints.
 7. Inspection of grain size, its color,
odor, bag weight etc. in 10-15
minutes.
 Domestic Concerns
• domestic income & employment opportunities:
achieve import-competitiveness thru’ time-
bound tariff protection
• supply constraints: remove domestic supply
bottlenecks
• missing commercial intelligence to implement
pre-emptive measures to improve
competitiveness
• autonomy to trade associations
• lack of suitable labour & other reforms
 Domestic Concerns
• redefine Essential Commodities Act
• export competitiveness in the longer run
• how to assign greater role to private & small &
marginal entrepreneurs?
• provide level playing field to farmer-owned
agribusiness
• promote corporate agriculture & assign tasks on
rural development to corporate bodies
• strengthen R & D
• promote aggressive standards
 Concerns for International
Negotiations
• ensure implementation of market access
clause - ask for single & uniform subsidy box
• demand evolution of global competition policy
• tighten & simplify measures to stop dumping
by foreign countries
• stable, uniform & scientific quality norms
• Support to Cairns Group of countries
Thank you