Surabhi Mittal: Need for export-oriented horticulture growth

The sector demands a host of initiatives to take it to the next level of competitiveness.

The foreign trade policy of India (2004-09) emphasised the need to boost agricultural exports, especially of horticultural products. In spite of India being the second largest producer of fruits and vegetables in the world, its exports of these items are negligible.

Rising domestic demand, along with supply-side inefficiencies are the main problems. The sector faces severe constrains such as low crop productivity, limited irrigation facilities and underdeveloped infrastructure support "" cold storages, markets, roads, transportation facilities, and so on. There are heavy post-harvest and handling losses, resulting in low productivity per unit area and high cost of production.

A lot of research initiatives and investments have already gone into the sector, which has seen a spurt in the supply of fresh fruits and vegetables in the past decade. But a lot still needs to be done to improve infrastructure conditions and reduce post-harvest losses in the sector.

Poor infrastructure has a direct impact on the growth potential and export competitiveness of horticultural products. Price competitiveness "" measured by the nominal protection coefficient (NPC) as the ratio of the price of domestic produce to the price of imported/exported products, after accounting for transportation cost and other marketing costs "" is low for India's horticulture sector. NPC is an indicator of the divergence of domestic price from the international price, and it determines the export competitiveness of commodities. An NPC of less than one implies that the produce is competitive, but for the major fruits and vegetables, this is not the case.

The high transportation and logistic costs "" that consist of handling expenses, storage charges, margins of wholesalers and other miscellaneous expenses "" lead to the sector losing its competitiveness. On an average, transportation, processing and margins cost are about 25 per cent of the domestic price. If these costs were reduced by even 5-10 per cent, many fresh fruits and vegetables will become export-competitive. These high costs also squeeze the incentives a farmer gets from exports.

On an average, India's transportation costs are about 20-30 per cent higher than those of other countries. As estimated by a World Bank report on horticulture, in case of air transportation, India's prices are about 45 per cent higher than the domestic retail price and for maritime transport, the prices are 25 per cent higher. This calls for the development of ports in major port cities exclusively for the export of perishables.

Within the country, high fuel price and border taxes make the transportation of produce from one part of the country to the other more expensive. It is estimated that a 20 per cent reduction in international transport costs can reduce final prices by 8-10 percentage points. In addition, there is a traders' margin which is estimated to be 6-8 per cent of the landed cost (import CIF price plus port charges). These high trade margins make the produce less competitive. Since farm gate prices are less than the market price, a direct procurement from the farm gate would reduce the in-between costs of transportation and commissions of the middle men. This would help make some of the commodities more competitive for exports.

The development of competitive international transportation, linked to domestic air transport or road and rail transport, could help in reducing post-harvest losses and improve competitiveness. The concern is that the window of international demand for horticultural products is very small. Thus, an efficient, uninterrupted availability of fruits and vegetables is needed to retain regular trade and to target the international markets during their lean period.

Large fluctuations in the production of fruits and vegetables cause problems in India's becoming a regular trading partner. Thus, to enhance exports there is a need to develop an air transport cargo system specialised for fresh fruits and vegetables, along with air, road and rail connectivity with the area of procurements. A planned strategy needs to be devised to target the markets during the demand period through better availability and competitive prices.

This piece is based on a study conducted by the author and brought out as ICRIER Working paper No 197. The views are personal