The World Trade Organisation and India's Agricultural Exports
Concerns of Greater Market Access and Better Prices
Research Paper (postgraduate) 2011 32 Pages
When World Trade Organisation (WTO) brought agricultural trade in its domain there was great expectation that trade of agricultural items will improve and masses will gain from it through greater market access and better prices particularly to the developing nations. But at the same time there was fear among the developing nations that foul play of some developed nations may have negative impact on market access and better prices for their produce. The present paper analyses the Indian concerns in this respect. It is found that the negative impact of WTO on agricultural commodities exports as it was thought is not a valid case for India. India’s agricultural items have got a due respect in international market. Not only the quantity of export has increased but also there is improvement in the prices of agricultural items. Non traditional agricultural items have got greater market access and better prices followed by traditional items and items of future potential.
It was widely believed that the establishment of World Trade Organisation (WTO) would bring order and encourage fair competition in this hitherto highly distorted sector of the world trade. It would lead to opening up of the world agricultural market where every member country would be able to participate in the world agricultural market according to its comparative advantage. The rising tides were expected to lift all the boats, big and small. However, the optimism on the part of the developing countries including India was short-lived. The major causes of distortion of international trade in agriculture continued to exist. The actions of some of the developed countries were a serious cause of concern for India where agriculture is the largest private sector enterprise with over 110 million farmers and workers, contributing about 20 per cent of the country’s Gross Domestic Product (Economic survey 2010-11). Nearly one-seventh of the country’s total export earnings accrue from the agricultural sector. Although Indian agriculture has grown at a reasonable pace, the majority of farmers are holding less than 2 hectares of land, net cropped area is stagnant, assured irrigation system is highly inadequate and for a large number of farmers, the gains from application of the science and technology is yet to be realized (Gulati, A. and A, Sharma (1995)). Therefore, it would be a challenging task to maintain the growth in agricultural production.
In the present paper an attempt has been made to examine the problems and prospects of India’s agricultural exports since the establishment of WTO. The first part of the paper discusses the expectations about the performance of agricultural exports. The second part deals with research methodology which is used in assessing the performance of India’s agricultural exports in the world market since the establishment of WTO. The statistical analysis about the performance of agricultural exports is given in the third part. Inferences and implications of the statistical evidence are given in the fourth part followed by the conclusion in the last.
INDIA’S EXPECTED GAINS
With the introduction of “Green Revolution” during 1960s, the implementation of the new method of production enhanced the productivity and production of Indian agriculture (Rao, J.M and S, Servaas 1998). This development of Indian agriculture made it self reliant in farm production to a great extent. From the consumption side also the Indian agriculture market reached the level of self sufficiency by the late 1970s characterized by low level equilibrium in absence of diversification (Rangarajan, C. 1982). After that India’s farm production has been more than the demand in the domestic market and with the passage of time it became a problem of Indian agriculture. The higher supply in comparison to demand, particularly during harvest season results in low prices and added a new dimension to the problems of agriculture (V.K.R.V. Rao, 1974).
Under the presence of the above problems, India was looking for the right opportunity to create market for agricultural products with improved prices. This opportunity was provided by the establishment of WTO in 1995. India entered the WTO regime with the expectation of greater market access and higher prices for her produce through the agreement on agriculture. This is the seventeenth year of WTO regime and this period is enough to analyse the performance of Indian agriculture in the international market in the light of its expectations from WTO.
There are a large number of Indian agricultural products, which are being traded in the international market. Taking each and every item is not possible for the present study. For the sake of simplicity some selected items are taken into account. On the basis of the past experiences of the India’s agricultural exports, the items are divided into three groups: namely (i) Traditional items, (ii) Non-traditional items and (iii) Items of future potential. In the group of traditional exportable items, those commodities are included which have been exported by India for the past several decades. India has a comparative edge over other countries in the production and export of these items such as spices, cashew, tobacco, etc. There are certain items which are being produced since a long time but came in the international market in late 1960s are included in the group of non-traditional items. The adoption and implementation of the policies of new economic order of 1990s again added some new items in basket of agricultural exports. These items are called the items of future potential that include the crops of horticulture, aquaculture and some processed items. For the present research work, five items are selected in the group of traditional exportable items. These are tea, cotton, tobacco, cashew and spices. In the group of non-traditional agricultural exports six major items are included, namely rice, sugar, oilcakes, pulses, wheat and other cereals. The newly formed group of agricultural export items, called the items with future potential, are the result of increasing popularity and demand of horticulture crops, processed and semi-processed agricultural items. Under this head, marine products, sesamum seed, guargum meal and fruits/vegetables seeds are included. The exclusion of the horticulture crops, processed and semi-processed items is a limitation of the present work. These items are excluded because of inadequate information about their exports. The information available about the export of these items are only in monetary terms while information about the exported quantity is not available which is necessary for analysing the ‘demand creation’ of these items in the international market.
Taking all the above items, separate indices are prepared for each category of exportable items to measure the changes in the quantity of the items and the movement in the prices of these products under the WTO regime. For calculation of indices, Fisher’s Ideal Index is chosen. To analyse the movement in the volume of exports, Fisher’s quantity index is used. The quantity index is calculated with the help of the following formula.
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Where Q0 = Quantity Index, p0 = Base Year Price, q0 = Base Year Quantity, p1 = Current Year Price, q1 = Current Year Quantity.
To measure the changes in the prices of agricultural products, the price index has been constructed on the basis of following equation.
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Here Po denotes the value of price index. The other abbreviations used for the calculation of changes in price are the same as in the quantity index. For the calculation of indices, 1994-95 is used as the base year which is the very previous year of establishment of WTO.
PERFORMANCE OF AGRICULTURAL EXPORTS
The establishment of WTO was expected to improve the economic condition of the farmers through increased agricultural exports all over the world, including India. The Indian farmers were expected to receive two important benefits namely, greater market accessibility and improved prices for their products. In order to assess the results of these expectations, two types of indices have been constructed. To measure the degree of market accessibility quantity index has been prepared and to measure the extent of improved prices, price index has been prepared.
Both the indices (quantity and price) for different commodity groups show an overall improvement in Indian agricultural exports with some exceptions. The quantity and price index of traditional agricultural commodities is given in Table –1 and illustrated in Fig.-1.
The quantity index value of the traditional items shows some fluctuations but greater accessibility in the world agriculture market. In 1995-96, the value of quantity index for these items was 103.04 that show a marginal increment in the quantity demanded by the international community. This marginal improvement in the exports of traditional items is largely based on the increase in the export of spices, tobacco and tea. For the same year the exported quantity of raw cotton and cashew has declined. In the next year a remarkable recovery is made in the export of raw cotton with a slight improvement in the export of tobacco and spices. Due to this the quantity index for traditional items touched the value of 130.89.
Export Indices of Traditional Items
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In the fiscal year 1997-98, the export quantity index of traditional items further improved to 144.10 from 130.89 in 1996-97 but fell to 120.17 during 1998-99. During the next year though some improvement took place and export quantity index of traditional commodities improved to 131.10 but the production and export of these commodities for the next two years was not the same. During 2000-01 and 2001- 02 the value of quantity index of traditional items was 126.00 point. During these years the worst export performance was of raw cotton. The next two years of the analysis period brought some relief to the exporters of traditional items. In 2002-03 the value of quantity index of traditional items improved to 147.35 and further grew to 150.23 in 2003-04. After this traditional exporter did not look back except in 2008-09 and quantity index for traditional items reached to 335.11 in 2009-10.