India-US F&B trade: Identifying future promise

The US is India’s top F&B export destination in 2020 with exports increasing at a CAGR of 4% between 2017 and 2021. However, share of F&B exports in India’s total exports has been declining. In this analysis, IBT deep dives into the F&B export numbers to identify the most promising F&B categories for exports by India to the US.

• India’s total exports to the US grew by 45% YoY, while F&B exports grew by 25% in 2021 relative to 2020. In CAGR terms from 2017-21, this growth is recorded at 4%.
• Top-performing export products were Beverages, Spirits, & Vinegar, Dairy, Fish, Edible Fruits & Nuts, and Animal or Vegetable Fats in terms of post-pandemic growth.
• In terms of CAGR (2017-21), Beverages, Vegetable Plaiting Materials, Sugar & Sugar Confectionery, and Edible Vegetables are the top F&B exports.
• Through an analysis of Revealed Comparative Advantage and Trade Intensity Index, this article identifies key product categories that can help India enhance its F&B exports to the US. 

Indo-US trade relations have witnessed further intensification over  the years, indicating an improved economic relationship between the two. The volume of bilateral trade crossed the US$ 100 billion threshold in 2021, taking it to the highest ever mark. This has been fueled by a 45% jump in the YoY growth rate of total Indian exports to the US post-pandemic. India currently enjoys a positive trade balance of US$ 30 billion, with exports standing at US$ 71 billion and imports at US$ 41 billion in 2021 (Department of Commerce).

When we examine the F&B trade basket in particular, the US is India’s largest export market. A closer look at India’s export basket to focus on the food and beverages (F&B) segment to the US shows that the exported value for 2021 grew by 25% relative to the previous year. Over a period of five years, the Compound Average Growth Rate (CAGR) has been calculated as 4%. But contrary to this positive trend in absolute terms, the share of F&B exports in India’s exports to the US has been declining. In 2017, this share stood at 9.85%, as compared to its current level of 7.7%.

Source: DGCIS, Ministry of Commerce and Industry; figures in US$ million

Source: Ministry of Commerce and Industry; based on YoY growth rate (%)

Trade Trends and Developments in F&B Segment

Growth rates (both 2017-2021 CAGR and YoY growth rates) for the F&B segment have been positive albeit, they have been lagging the growth rates for India’s total exports. Annual growth rate figures across different products show the highest rates for Beverage, Spirit, and Vinegar (HSN 22), Dairy Produce (HSN 04), and Fish (HSN 03). However, six products have reported a fall relative to 2020 figures – Meat (HSN 02), Cereals (HSN 10), Sugar and Sugar Confectionery (HSN 17), Preparations of Cereals (HSN 19), Preparations of Vegetables (HSN 20), and Products of Milling Industry (HSN 11).

Among the 19 F&B products, except for Meat exports, there are 4 different products that have been identified to shrink over the five-year period (2017-21). Exports of Edible Fruit and Nuts (HSN 08), Lac, Gums, Resins (HSN 13), Cocoa and Cocoa Preparations (HSN 18), and Oil Seeds (HSN 12) are the commodities that have exhibited a decline in exported values.

Source: Ministry of Commerce and Industry & UN Comtrade; CAGR in %

Many supply-side factors have been identified to have contributed to the slump in cocoa production over the last five years that have contributed to its declining exported value. These include the adverse weather conditions owing to uncharacteristically high unseasonal rains in the Southern states of Karnataka and Kerala, relatively unsuitable cocoa varieties, and employment of less productive technologies.

Developed countries like the US and EU have been found to have higher food safety standards as codified in the Codex Alimentarius. The MRLs (Maximum Residual Limits) are frequently revised and tend to be lower than the limits prescribed by India’s competent authority FSSAI, resulting in consignments being highly prone to rejections. This may be seen as a contributing factor towards the -23.44% decline in CAGR (2017-21), noted for Edible Fruit and Nuts (HSN 08).

According to the USDA (US Department of Agriculture), India’s exports of water buffalo meat have been determined to be uncompetitive with the US beef industry owing to different quality preferences and animal health regulations mandated by theirmarket[1]. Currently, US’s meat imports stood at US$ 9.5 billion with the combined share of the top 3 supplying markets of Canada (28.6%), Australia (24.9%), and Mexico (16.7%) accounting for 70% of the imported value in 2020 (UN Comtrade).

Assessing India’s Competitiveness and Trade Intensity

A comprehensive assessment of the bilateral trade between India and the US has been conducted with the use of trade indicators such as Revealed Comparative Advantage (RCA)[2] and Trade Intensity Index[3] for the F&B segment. It was observed that India has a revealed comparative advantage in 11 out of the 19 F&B products in 2020.

Source: UN Comtrade; *Based on RCA index values for India’s F&B products

Among the 11 advantageous products, 5 display a widening of this advantage viz-a-viz the global export share, and most notably among them are Lac; gums, resins… (HSN 13), Cereals (HSN 10), Coffee, tea, maté and spices (HSN 09), Sugar and Sugar Confectionery (HSN 17), and Fish and crustaceans…(HSN 03).

It can be interpreted that India’s export share in these products relative to global export share is on the uptrend with index values in 2020 being greater than 2018. Export expansion with the US can be explored for these products as they present India’s comparative strengths that can be capitalized. The relative strength of India in the exports of these products is governed by the assumption that it reveals the relative productivity differences, but national measures such as tariffs, non-tariff measures, subsidies so on are not included in the metric.

Source: UN Comtrade; ^Based on Trade Intensity values for India’s F&B exports to the US

Trade (Export) Intensity Index is a measure of the ratio of India’s export share to the US to the world’s export share to the US. A share that exceeds 1 indicates a higher degree of export intensification between India and the US. This has been seen for 11 F&B products, from which 6 products have registered an upswing in index values signifying the strengthening of exports.

The favorable situation is visible for Fish (HSN 03), Cereals (HSN 10), Preparations of Meat (HSN 16), Coffee, tea, mate (HSN 09), products of the Milling Industry (HSN 11), and Animal or Vegetable fats (HSN 15) presents a unique possibility for India to make further gains in the F&B exports segment.

Future of Bilateral Trade with the US

A macro perspective of the bilateral trade between the two countries shows that Indian exports to the US have not only been rising in absolute terms but also in terms of percentage share of India’s total exports. In FY 2018, this export share stood at 15.77% and has risen to 18.30% in FY2022 (April-Jan 2022) exhibiting a significant YoY growth rate of 20.64%. Trade balance with India has also reached a historic value of US$ 30 billion in FY 2022 (Department of Commerce)[4].

The Congressional Research Service (CRS) report[5] on US-India trade relations shared its findings that the new Biden administration is expected to act more proactively towards resolving certain market access-related issues and expand its trade ties. November 2021 also witnessed the convening of a ministerial-level meeting of the bilateral Trade Policy Forum (TPF) to address some of India’s concerns relating to the agriculture market access and digital services tax.

A convergence of six commodities has been noted among the list of commodities with scores greater than 1 according to the RCA and trade intensity indices. This implies that in the exports of Lac, Gums, Resins…(HSN 13), Cereals (HSN 10), Coffee…(HSN 09), Fish…(HSN 03), Product of Milling Industry (HSN 11), and Oil Seeds…(HSN 12), India is not only “revealed” to have a competitive strength, but also exports ‘intensely’ with the US relative to the global pattern. Hence, it can be surmised that these are critical categories, which India can focus on to increase its F&B exports to the US.


Sources:

[1] https://www.ers.usda.gov/publications/pub-details/?pubid=37673

[2] RCAij = (xij/Xit) / (xwj/Xwt)

Where xij and xwj are the values of country i’s exports of product j and world exports of product j and where Xit and Xwt refer to the country’s total exports and world total exports. If the index exceeds unity, the country is said to have a revealed comparative advantage in the product.

[3] Tij = (xij/Xit)/(xwj/Xwt)

Where xij and xwj are the values of country i’s exports and of world exports to country j and where Xit and Xwt are country i’s total exports and total world exports respectively. An index of more (less) than one indicates a bilateral trade flow that is larger (smaller) than expected, given the partner country’s importance in world trade.

[4] https://tradestat.commerce.gov.in/eidb/iecnt.asp

[5] https://sgp.fas.org/crs/row/IF10384.pdf

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