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HomeNationWhy India’s farm exports may face headwinds

Why India’s farm exports may face headwinds

Both agricultural exports from and imports into India have scaled new highs in the fiscal year that ended March 31, 2023.

Provisional data from the Department of Commerce shows total farm exports at $53.15 billion and imports at $35.69 billion during 2022-23, surpassing their previous year’s records of $50.24 billion and $32.42 billion respectively.

The resultant agricultural trade surplus has marginally dipped from $17.82 billion to $17.46 billion. The surplus narrows further if one adds the import of fertilizers, which have risen from $14.17 billion in 2021-22 to $17.21 billion in 2022-23.

The drivers – global prices

The chart shows the country’s farm trade over the last decade.

India’s agricultural trade in US$ (billions).

Between 2013-14 and 2015-16, exports sharply fell from $43.25 billion to $32.81 billion. The basic driver was global prices.

The UN Food and Agriculture Organization’s Food Price Index (FPI) crashed from an average of 119.1 points in 2013-14 to 90 points in 2015-16. However, imports continued to rise, bringing down the farm trade surplus from a peak of $27.72 billion in 2013-14 ($21.46 billion net of fertilizer imports) to a low of $8.05 billion by 2016-17.

The FPI – a weighted average of world prices of a basket of food commodities over a base period value (2014-16=100) – recovered to 102.5 points by 2020-21, and further to 133 points in 2021-22 and 139.5 points in 2022-23. And as that made India’s agri-commodities more globally price competitive, exports also soared to $41.90 billion, $50.24 billion and $53.15 billion during these three years.

Major export contributors

India’s agri exports have, in recent times, been powered by three items: Marine products, rice and sugar (table 1).

India’s top agricultural exports items in US$ (millions).

Marine product exports have grown steadily from $5.02 billion in 2013-14 to $8.08 billion in 2022-23. Rice exports have also gone up during this period, from $7.79 billion to $11.14 billion. But it’s been driven by non-basmati rice (more than doubling, from $2.93 billion to $6.36 billion), with the value of premium-priced basmati shipments actually declining (from $4.86 billion to $4.79 billion).

Basmati exports are mainly to the Persian Gulf countries and, to some extent, the US and UK. Non-basmati shipments are more diversified, with the destinations spread across Asia (Bangladesh, China, Sri Lanka, Malaysia, Vietnam, UAE and Iraq) and Africa (from Senegal, Ivory Coast and Benin to Somalia and Madagascar). It’s non-basmati that has made India the biggest rice exporter, ahead of Thailand.

The boom in sugar exports has been more recent – from a mere $810.90 million in 2017-18 to $1.97 billion in 2019-20, $2.79 billion in 2020-21, $4.60 billion in 2021-22 and $5.77 billion in 2022-23. Indian mills have built markets for both raw sugar (among refineries in Bangladesh, Indonesia, Malaysia, Saudi Arabia and Iraq) and regular plantation whites (in African countries, Afghanistan, Sri Lanka and China). The country has, in the process, emerged as the world’s No. 2 exporter after Brazil.

Laggards and losers

Two items whose exports had registered substantial increases, only to falter in the last few years, are spices and buffalo meat.

Spices exports jumped from $2.5 billion in 2013-14 to almost $4 billion in 2020-21. It was led not by traditional plantation spices such as pepper and cardamom, but by chilli, mint products, cumin, turmeric, ginger, coriander, fennel and other seed spices. However, exports have since stagnated. Buffalo meat shipments, too, have never regained their peak of $4.78 billion reached in 2014-15.

The drop has been even more for raw cotton, guar-gum and oil meals. Exports of the three in 2022-23 ($781.43 million, $617.14 million and $1.6 billion) were a pale shadow of their highs of 2011-12 ($4.33 billion for cotton) and 2012-13 ($3.92 billion for guar-gum and $3.04 billion for oil meals).

Cultivation of genetically-modified Bt cotton and high global prices had enabled India to become the world’s top producer (ahead of China) and No. 2 exporter (after the US) of the natural fibre. But with the yield gains from Bt tapering off and the regulatory regime not permitting new gene technologies, the country has turned from a net exporter to an importer of cotton.

Guar-gum (a thickening agent used in extraction of shale oil and gas) and oil meal exports rode the global commodity price boom from 2003-04 to 2013-14. They haven’t shown the same buoyancy in the more recent post-Covid boom, partly due to domestic crop shortages – especially in cotton and soyabean – not generating adequate surpluses for exports.

Imports profile

Unlike exports, India’s imports of farm produce are dominated by a handful of items (table 2).

India’s top agricultural import items in US$ (millions).

The most significant is vegetable oils, whose imports have more than doubled in value terms, from $9.67 billion to $20.84 billion between 2019-20 and 2022-23. In quantity terms, imports have risen from 13.18 million tonnes (mt) in the 2019-20 oil year (November-October) to 14.03 mt in 2021-22, according to the Solvent Extractors’ Association of India. During November-March 2022-23, they have grown further by 23.7% over the same period of the previous oil year.

Imports meet roughly 60% of India’s vegetable oil requirements. That dependence is hardly 10% now in pulses, with the value of imports also coming down from $4.24 billion (6.7 mt) in 2016-17 to $1.94 billion (2.5 mt) in 2022-23.

On the other hand, imports of spices, cashew and cotton – commodities where India has traditionally been a net exporter – have shown a rising trend. Spice imports going up are a reflection of reduced price competitiveness (vis-à-vis Vietnam in pepper and Guatemala in pepper), while an outcome of stagnant, if not falling, domestic production in cotton.

Risks to trade

Agri-exports in the current fiscal could face headwinds from two sources.

The first is international prices: The latest FPI reading of 127.2 points for April 2023 is down from the 159.7 points peak of March 2022 and the 2022-23 average of 139.5 points.

The second source is domestic, more specifically food inflation fears ahead of the 2024 national elections. The Narendra Modi government banned wheat exports last May. This was followed by a ban on broken rice exports and the slapping of a 20% duty on all non-parboiled non-basmati shipments in September. Exports of sugar have also stopped since this month’s start.

One can expect more curbs on exports – and a further liberalization of imports – if the ensuing southwest monsoon season delivers subnormal rainfall.



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