02 August 2021 • 24 min read
India’s Agricultural Exports: Waiting For Harvest
Learn about the strengths, challenges & untapped potential of India’s agricultural export sector. Also discover the top 10 agricultural export commodities and the predictions for 2021
India is blessed with a large land mass and varied climates, allowing it to grow a huge variety of food and non-food commodities. Agriculture and its allied sectors (animal husbandry, dairy, fishery, forestry, etc) employ 58% of India’s population. In 2019-20, they contributed 17.8% to the country’s gross value added (defined as the value of goods and services produced in an economy after deducting input costs).
India is the 10th largest exporter of agricultural products, primarily exporting rice, meat, seafood, spices, cotton, sugar, castor oil and tea. The United States, Saudi Arabia, Iran, Nepal and Bangladesh are its top buyers. India’s agricultural exports touched $35 billion in 2019-20, down from $38.54 billion in 2018-19. But it was one of the few bright spots in a pandemic-ravaged 2020, with India exporting $3.6 billion worth of agricultural goods between March and June, a 23% increase from the same period in 2019.
As impressive as this sounds, the agri export sector is nowhere near its full potential. India accounts for just 2.5% of world agricultural trade. However, it is committed to making a giant leap. The Agricultural Export Policy, introduced in 2018, aims to double agri exports to $60 billion by 2022 and reach $100 billion in the next few years. It plans to do this by exporting more products, conquering new markets, boosting high-value and value-added exports, and promoting novel, indigenous, organic and ethnic products.
Will it succeed? In this blog, we take a look at the challenges and opportunities facing India’s agri exporters. Read on to know about:
- Strengths and weaknesses of Indian agriculture and exports
- Top 10 Indian agricultural exports and export destinations
- Challenges for Indian agri exports
- What the government is doing for agriculture and exports
- Opportunities and solutions
- State of farm reforms
State of India's agricultural sector and exports
What India is doing right and where it is faltering on agriculture and agricultural exports:
- India’s climate ranges from humid to dry to temperate, giving it high agro-ecological diversity
- With just 2.4% of the world's land area, it is home to 8% of all recorded species (45,000 plant and 91,000 animal species)
- Agriculture is the primary employer of 58% of the workforce or 70% of rural households
- India is the largest producer of milk, pulses, jute, mango, banana and okra; second largest producer of rice, wheat, vegetables, fruit, cotton, sugarcane and groundnut; and a leading producer of spices, fish, poultry, livestock and plantation crops (tea, coffee, cashew nut, coconut, rubber)
- It has the largest population of buffalos at 108.7 million
- Its food-grain production is projected to hit an all-time high of 303 million tonnes in 2020-21, 2% higher than the previous financial year
- Its agri exports grew at 9% between 2007 and 2016 compared to 8% for China, 5.4% for Brazil, 5.1% for the US. During this period, coffee, cereal and horticultural exports doubled while export of meat, fish and processed products grew three to five times
- In 2020-21, agriculture’s contribution to GDP was just under 20%, a mark reached 17 years ago and not since breached
- Agricultural production is too cereal-centric. In Punjab, area under rice and wheat went up from 47.2% of total crop area in 1970 to 80.3% in 2010, as per the State of Rural and Agrarian India Report 2020
- Such a model of monocultures means high dependence on chemicals and hybrid seeds and excessive groundwater extraction, resulting in loss of soil health, groundwater depletion and loss of diversity. Sample this: of 70,000 rice varieties discovered on the Indian subcontinent over the years, only 7,000 remain, of which just a handful are grown
- 60% of sown area doesn’t have irrigation facility and is rainfall-dependent
- Farm land is increasingly being diverted for industry and urbanisation. Net sown area fell by 30 lakh hectares between 1990-91 and 2014-15
- 86% of farmers are small or marginal, owning less than 2 hectares of land
- Low credit access and dependence on unorganised creditors has put farmers in a debt trap, leading to a string of suicides
- India’s populist farm policies (subsidies, price support) are said to favour rich farmers with large land holdings and political power
- India’s agri exports are primarily low value, raw or semi-processed and marketed in bulk. High-value and value-added products make up less than 15% of total agri exports (it is 25% for the US, 49% for China)
- There’s a huge gap between production and export. India ranks second in wheat production but 34th in export, second in fruit production but 23rd in export, second in vegetable production but 14th in export
- India ranks lower than smaller exporting nations like Indonesia and Thailand
- India’s agri export graph has been up and down, going from $17.82 billion in 2009-10 to $42.51 billion in 2013-14 and down to $35 billion in 2019-20
Challenges to Indian agricultural exports
The main reasons stopping India from fulfilling its agri export potential:
- Export bans and restrictions: In 2020, India banned onion exports for four months due to a shortage of the staple and rising prices at home. This isn’t the first time it has resorted to an export ban to control inflation. In 2015, it had stopped potato exports. Export bans not only hurt India’s image as a reliable exporter but help rival exporters (Iraq and Turkey in the case of onions). Additionally, India restricts the bulk export of certain goods such as mustard oil, because it is an item of mass consumption domestically. Traders want the restriction lifted, saying India produces enough mustard seeds to be able to export the oil in bulk.
- Absence of farmer-exporter links: Most Indian farmers sell their produce to official wholesale markets run by Agricultural Produce Marketing Committees (APMCs). This means they have no direct links with exporters and, therefore, have no understanding of the quality and variety of goods demanded in foreign markets.
- Quality issues: By failing to meet quality standards, Indian exports are often rejected by importing countries. The EU has rejected Indian basmati rice, Alphonso mangoes and some vegetables in the past over pesticide presence. Mexico banned Indian red chillis in 2017 over the presence of a quarantine pest.
- Supply chain weaknesses: These include inadequate harvest/post-harvest management, lack of chemical use regulation, insufficient logistics support (no port connectivity for land-locked areas, port congestion, no road connectivity, etc).
What government is doing for agricultural exports
The government regulates, monitors and promotes farm exports through the following departments and agencies:
- APEDA: The Agricultural and Processed Food Products Export Development Authority promotes the export of 14 agricultural and processed food product groups listed in the APEDA Act. It conducts market development, marketing, quality and infrastructure upgradation and training and provides financial assistance to registered exporters.
- MPEDA: The Marine Products Export Development Authority promotes the export of shrimp, prawn, lobster, crab, fish, shell-fish, other aquatic animals or plants. Its role in agri exports includes regulation, inspection, setting standards and training personnel.
- PPQ&S: The Directorate of Plant Protection, Quarantine and Storage advises the Centre and states on plant protection, including minimising crop loss from pests and regulation of pesticides. It also inspects export products for compliance with the importing country’s requirements and facilitates the issuance of phytosanitary certificates required for export.
- Commodity Boards: The Department of Commerce houses five commodity boards – the Coffee Board, Tea Board, Spices Board, Tobacco Board and Rubber Board. These are responsible for the production, development and export of their respective commodities.
- DGFT: The Directorate General of Foreign Trade is India’s main regulator, promoter and facilitator of foreign trade.
- Export Inspection Council: India’s official export-certification body, it ensures exports meet quality and safety requirements of importing countries.
- ECGC: Formerly the Export Credit Guarantee Corporation Limited, it offers credit insurance to exporters to cover them against risk of non-payment.
- FSSAI: All food exports must be registered and licensed with the Food Safety and Standards Authority of India. An FSSAI licence means the product is fit for consumption and meets health, safety and quality standards.
Other government departments with a say in the export of agricultural and allied products are the Customs Department, Reserve Bank of India, State Agriculture Marketing Boards, Department of Agriculture, Cooperation and Farmers Welfare, Department of Animal Husbandry, Dairying and Fisheries, Department of Agricultural Research and Education, and Indian Council of Agricultural Research.
Furthermore, the government supports farm production and agricultural export through initiatives and schemes including:
- Paramparagat Krishi Vikas Yojana – Promotes organic farming with an aim to provide chemical-free food, improve soil fertility and conserve natural resources.
- Pradhan Mantri Krishi Sinchayee Yojana – Aims to expand the area under irrigation, improve water use efficiency and introduce sustainable water conservation practices.
- Pradhan Mantri Annadata Aay SanraksHan Abhiyan – Ensures minimum support price to farmers (MSP is the minimum price government agencies pay farmers when procuring a crop that the government considers remunerative for farmers and hence deserving of support). Currently, the government fixes MSPs for 23 commodities (including paddy, wheat, cotton, sugarcane, certain oilseeds and pulses).
- Pradhan Mantri Kisan Sampada Yojana – Promotes the food processing sector through the creation of modern infrastructure and efficient supply chain management.
- Atmanirbhar Bharat Abhiyan – Funds infrastructure development, technical upgradation, elimination of diseases, improvement of food and nutritional security in agriculture and food management sectors.
- Agriculture Export Promotion Scheme – Implemented by APEDA, it provides financial assistance to exporters for infrastructure development, quality development and market development.
- Transport and Marketing Assistance for Specified Agriculture Products – Covers international freight and marketing costs for export of eligible agricultural products to specific overseas markets.
- Mega Food Parks – Seeks to enhance food processing infrastructure from farm to market through the creation of collection, processing, storage, sorting, grading and packing facilities, and provision of roads, electricity, water and drainage. India plans to build 42 mega food parks, 22 of which are already functional.
- Product-district clusters – Similar to the earlier Agri Export Zones scheme, this export promotion initiative identifies and develops clusters of districts that produce a specific product and have export growth potential. Districts are identified on the basis of production and export ability, scalability of operations and size of export market.
Read our detailed account of India’s export promotion schemes for all goods, including agricultural products, here
Opportunities and solutions for India’s agricultural exports
The UN’s Food and Agriculture Organisation values India’s untapped export potential at $97.02 billion. How can India make good on this huge opportunity? Based on various studies and the recommendations of a government-appointed High-Level Expert Group (HLEG), here’s what India should keep an eye on:
- Products with export growth potential: Rice, shrimp, spices, buffalo meat, fruits and vegetables are “must-win” crops, according to the HLEG. Based on current global wellness trends, food-based nutraceuticals, medicinal aromatic plant extracts and organic foods are also strong export candidates, as are cashew and its products, cereal preparations, processed and value-added products.
- Top export destinations: The US – currently among the top five destinations for Indian agri exports – and the EU hold great opportunity. The government believes Indian agri exports can do even better in the Gulf, which is already a strong market.
- Pain points: Even among India’s top agri exports, there are supply chain weaknesses hampering trade. The HLEG reveals pain points for specific products and suggests solutions – for example, brand-building and quality improvement for Indian shrimps to make up for a lack of global presence; investing in packhouses for quality grading of mangoes; free trade agreements to reduce import duties on buffalo meat at destination markets.
- State involvement: Agriculture is a state subject in India, which means it is on the Constitution’s State List. Export, on the other hand, is a central subject. This explains the ill-defined role of states in agricultural exports. Given the varying crop profiles, needs and abilities of each state, experts say formulating the farm export plan of a state is best left to the state.
- Private investment: They also call for private investment to create efficient supply chains and alternative marketing systems.
- Nodal agency: Currently, agri export decisions are scattered across ministries and departments. Setting up a nodal agency with representatives from all relevant ministries and departments would make the process smoother.
Farm reforms – a sore point
In India, there has long been a demand for farm reforms. Yet, when the government in 2020 passed three new farm laws, the result was a violent and months-long protest by farmers that grabbed international headlines and left more than 200 farmers dead. With the protests refusing to die down, the Supreme Court this January suspended the implementation of the laws. These laws are:
- The Farmers Agreement on Price Assurance and Farm Services Act
- The Farmers' Produce Trade & Commerce Act
- The Essential Commodities Act
They essentially allow farmers and traders to do business outside of government-approved wholesale markets as well as online. The government says these laws aim to “protect and empower” farmers and help them transact in a “fair and transparent manner”. Protesting farmers, however, say this is a first step towards dismantling government support (subsidies, MSP, etc) provided to farmers since the 1960s.
The farmer protests show that farm reforms, while much needed, are easier said than done. And yet, they are a necessity if India is to fulfil its target of doubling agricultural exports to $60 billion by 2022.