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Can agriculture exports lead to farm income growth?
Apr. 9, 2020
The topmost agenda and the much-needed attention from the Government is addressing the farmers’ needs. In the recent years, crop failures, indebtedness, non-remunerative prices and low returns had taken, unpleasant shapes leading to protests in several parts of the country.
What makes it worse, is the absence of adequate information on farmers’ income. Some researchers have tried to fill this gap by using proxy indicators to analyze the factors that can influence farm income. As studies suggest, in non-subsidized agriculture, the real income of farmers depends primarily on crop productivity, commodity prices, and production costs. If this is true, increased production by adopting several measures to boost productivity should have enhanced farm income.
On the contrary, we have seen years of record production, but depressed prices leading to agrarian distress. Again, if protecting prices were the solution, in FY18, the Minimum Support Prices (MSPs) for the 24 crops were fixed at 1.5 times the production cost should have supported the growth. Yet in mandis, farmers failed to realize as much as the declared MSPs. The key question thus arises – is the domestic market large enough to allow the market forces determine the prices that can ensure stability in farm income? Several researchers tried to bring in the dimension of expanding markets for farmers. Linking agricultural production to export markets is viewed by many as one of the best means to increase farmers’ market and enhance income opportunities.
India has consistently remained a net exporter of agricultural products since economic reforms began in 1991. In 2018, India’s exports in agricultural goods amounted to USD 32.6 Billion and imports in agricultural goods amounted to USD 27.3 Billion. However, the growth in agriculture export has been far from adequate. An Indian agricultural economy that is twice the size of the US agriculture economy accounts for only 2% of the global exports as compared to 10% of US export share. Moreover, the relative importance of agricultural export within the economy has also seen a significant downturn. For instance, agricultural exports accounted for 44 percent of total exports in 1960 decreased to 15.5 percent in 1988 and then 10 percent in 2018.
One of the key reasons why agricultural export failed to translate growth in farm income is its inability to diversify its agricultural export market from primary agri commodities to high valued processed food.~20% of our agri export is rice while the high valued commodities, like fruits, or processed fruits accounts for a mere 3-4% of total agri export. Poor storage capacities, highly competitive fruits markets, phytosanitary requirements, etc., have limited the export of fruits or any other high valued commodities.
For similar reasons, diversification of the Agri export market is also limited to only developing countries or so-called “Global South” which are by themselves subject to various economic risks. For instance, in 1990, India’s major agricultural export partners were the Soviet Union, United States, United Kingdom, Saudi Arabia and Japan. In 2018, India’s major agri-export destinations were Vietnam, United States, UAE, Bangladesh, Iran, Saudi Arabia, China, Indonesia and Malaysia.
Globalization can become the key force to enhance the role of agriculture as an engine of growth by making it possible for agriculture to grow considerably faster than domestic consumption. This is possible through diversification and it can come in two ways – (a) diversify from primary or low valued crops to high valued crops and (b) diversify from developing economies to developed or more stable and low risk economies. Diversification at this level is possible only when we have a strong and well-developed agricultural production system within the country for which market can be created outside. This requires strengthening of the value chain in the entire process from production to marketing.
Realizing the importance of agricultural export, Government of India introduced a comprehensive Agriculture Export Policy with the following vision -“Harness export potential of Indian agriculture, through suitable policy instruments, to make India a global power in agriculture, and raise farmers’ income.” One of the objectives of India’s Agricultural Export Policy is to double agricultural exports from present USD 30+ billion to USD 60+ billion by 2022 and reach USD 100 billion in the next few years thereafter, with a stable trade policy regime. While having a quantitative goal is essential, a qualitative improvement in agri export items and the countries to which we export will have a significant bearing on farm income growth.
Source: Market Express
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