Policies for agri exports must be linked to cost of sustainable production

India’s agricultural exports have witnessed a remarkable transformation has taken place in recent years, contributing to improved realizations for farmers and a positive impact on their income. Dr. Arpita Mukherjee, Professor, ICRIER shares her views on the industry’s current scenario and prospects for export enhancement. She asserts that global demand is moving towards more sustainable food supply chains, making targeted interventions in these sectors essential.

IBT: India’s agri exports reached US$ 43.37 billion in 2022-23, and it is considered a key contributing sector to the vision of US$ 1 trillion in merchandise exports by 2030. How do you view the sector’s export performance vis-à-vis the competition and its own innate potential?

Dr Arpita Mukherjee: India has a strong potential to produce and export agricultural products. We are the world’s largest producer of milk, pulses and jute, and we rank second largest in the production of rice, wheat, sugarcane, groundnut, vegetables, fruit and cotton. We are also among the leading producers of spices, fish, poultry, livestock and plantation crops. India is the second largest fish-producing country in the world, accounting for around 7.6% of total global production. Aquaculture is growing in India with the country being among the top global exporters of shrimp. India was ranked third in global egg production, and eighth in meat production in 2021. We  are ranked 4th in terms of global maize acreage and 6th in maize production. 

Agriculture products of India are exported to over 70 countries in the world. We have the potential to export both conventional and organic products. Agro-food products are amongst the top commodities in India’s export basket and it has been among the top 15 leading agro-food exporters globally since the last decade. We account for over 2% of the world exports, but there is still a huge potential to increase this share. To reach the US$ 1 trillion target and beyond, we need to almost double our exports, with a focus on exports of high-value crops, horticulture products, organic, etc.      

IBT: In what ways do you see the global demand for food products evolving in the coming years? How can India prepare its agri sector to meet this demand?

Dr Arpita Mukherjee: Global demand for food products is moving towards more sustainable food supply chains. Consumers are becoming increasingly aware of the nutritional content of food products, how it is cultivated, what kind of chemicals are used, etc. Countries are also focusing on strict sanitary and phytosanitary measures so as to reduce the incidence of foodborne diseases. Hence, nutrition and health & safety issues will play a key role in driving exports. To prepare for this, we need to develop sustainable food supply chains, ensure supply chain traceability, ensure access to quality inputs for our farmers, and create adequate infrastructure and logistics facilities so there is no contamination and wastage in the supply chain.

Policies and schemes have to be linked to the cost of sustainable production and support product reformulation to healthier options that can meet export demand. For example, in the case of organic products, while third-party certification entails the cost of laboratory testing and certification, organic farmers under PGS get subsidies. But those under APEDA’s NPOP do not get subsidies and have to bear the full certification and laboratory testing expenses. The cost of testing and certification for exports should be lower.  

IBT: Agri sector is often viewed with greater sensitivity by countries during trade negotiations, given its importance for both lives and livelihoods. Given its unique context, what should be India’s approach and key asks in its FTA negotiations?

Dr Arpita Mukherjee: In agriculture trade, there are both tariffs and non-tariff barriers. Most of the countries with whom we are negotiating trade agreements, especially developed countries, are negotiating a reduction in tariffs on imports through trade negotiations. While we want access to these markets, there is a concern in India about opening up our own market for certain agricultural commodities like dairy products or poultry by certain groups of domestic producers.

There are also concerns related to whether our exporters will be able to meet the importing country’s standards and other requirements. We need more detailed country-specific studies to see:

(a) What type of products we are exporting and to which countries?

(b) What kind of products can we export after the FTA to partner countries in the future?

(c) What are the export barriers and how they can be addressed under the trade agreement?

(d) What do we have to offer in return?

(e) Which groups of stakeholders in India are likely to be adversely impacted and why?

(e) How can we reduce the adverse impact of the FTA with a focus on supporting farmers and small producers to become more globally competitive and benefit from the trade agreements? 

There is also a need to have more detailed country-specific studies on possibilities of regulatory cooperation like signing mutual recognition agreements or cooperation among the food safety authorities. Training and capacity-building programmes and facilitating business-to-business partnerships and collaboration can be part of the trade agreement. We also need to have a clear understanding of how to phase out the tariffs so that the domestic industry is not adversely impacted. The domestic industry should also prepare itself for the tariff phasing out. 

IBT: How do you view the progress of India’s food processing sector over the past few years, with the help of policies like PMKSY? What are the key gaps to be filled in this sector to be at par with global benchmarks?

Dr Arpita Mukherjee: The food processing sector in India is growing with an average annual growth rate (AAGR) of around 5.1%. The sector constituted 9.87% and 11.38% respectively of GVA in the manufacturing and agriculture sectors in FY 2020. The food processing industry accounts for around 32% of the total food market in the country. Over 95% of the food processing industry in India is channelised through micro, small and medium enterprises (MSMEs) and they contribute around 10.4% to the country’s exports.

Schemes like Pradhan Mantri Kisan SAMPADA Yojana (PMKSY) have been initiated to create an efficient supply chain in the food processing industry, to reduce food loss from the farm gate to the retail outlet.  It includes seven components, namely

(i) Mega Food Parks (MFPs)

(ii) Integrated Cold Chain and Value Addition Infrastructure

(iii) Infrastructure for Agro-Processing Clusters

(iv) Creation of Backward and Forward Linkages

(v) Creation/Expansion of Food Processing & Preservation Capacities

(vi) Food Safety and Quality Assurance Infrastructure and

(vii) Human Resources and Institutions

These initiives have helped to develop the food processing sector and supporting infrastructure across the food supply chain. However, there are some gaps. For example, there is no national food processing policy and/or roadmap with clear targets and action plans.

Some components of PMKSY like Mega Food Parks have been discontinued as units did not find it lucrative to locate in the food parks due to many reasons including their remote location, connectivity issues, inside park infrastructure, etc. During our research, we also found that while there are multiple schemes, there is a lack of awareness about these schemes and how to access them, especially among small and medium farmers and processors. Hence, the schemes are sometimes underutilised.

Targeted benefits to MSME food processors linked to sustainable food production will be beneficial. Reducing the cost of borrowing will help these processors. Globally, most benefits are given to MSME producers to scale up and export. These include both fiscal and non-fiscal incentives and are targeted to a reduction in the cost of production and ease of doing business. An example of a non-fiscal incentive is capacity building and training and sharing of country-specific market entry information.   

IBT: What is your view on the PLI scheme for food processing industries? How can its impact be enhanced to bring in more innovative startups in the sector?

Dr Arpita Mukherjee: PLI is a very good scheme to scale up. However, in the context of exports in a sector like agriculture and food  products where we are a global leader, it can be treated as an industry-specific actionable subsidy under the WTO Agreement on Subsidies and Countervailing Measures. Due to this, few foreign companies have availed PLI in the food processing sector. This scheme is not for start-ups. For start-ups and MSMEs, there is a need for schemes which may focus on linking incentives to sustainable produce (such as third-party certified organic products) and innovative products.  

IBT: India has several GIs in the food sector. How can the uniqueness of these products be leveraged in the global market?

Dr Arpita Mukherjee: Importing countries (like the EU) are negotiating GIs under trade agreements and this is also a key component of our trade negotiations with the EU, UK and other markets like Australia and Canada. It is important for India to give and seek market access for GI products through trade agreements. We also need to understand the implications of opening up our own market to GI products. There is a need for more interaction with the industry and other stakeholders on how to promote exports of GI products. Such exports are often linked with other sectors like tourism and the hospitality industry. There is a need for promotion, marketing, brand building and enhancing global visibility of Indian GI food products.  The awareness about our own GI products in India is limited and this needs to be raised first.   

IBT: India has a rich agri bounty, a well-developed indigenous processed food sector and a diverse spread of regional cuisines. To what extent can brand promotion help in generating export value, and what routes do you propose for the same?

Dr Arpita Mukherjee: We need to build indigenous brands and promote them through business-to-business events, food fairs, tourism and the hospitality sector.  It is important to study how countries like Australia and Chile are promoting wines. Some EU member countries are good case studies to see how cheese and dairy products are promoted. First, the product has to be well-known like Scotch whisky or Scottish or Norwegian salmon. In the case of India, few products like Darjeeling tea are well-known in importing country markets. Promotional events can help to spread more awareness. It is also important to rope in industry associations, tourism and hospitality industry to map in the Indian GI products by states, their specialization and how they can be part of different Indian and global cuisines.  

IBT: Quality standards play a huge role in export success. What measures do you propose for enhancing awareness and adherence to global standards across the industry, thereby enhancing the brand equity of Indian food products?

Dr Arpita Mukherjee: All exporters and producers and their supply chain agents should be aware of the importing country’s standards and requirements. They should put in place a transparent system of traceability and keep clear documentation of the practices and processes to show that they are aware of and are meeting the requirements. Regular training programmes can be organized by industry associations in partnership with food safety and other relevant authorities of partner countries on the import clearance processes and requirements. The government can support industry bodies for promotion, and industry bodies can create market-specific entry strategy documents and training manuals which can be used by their members for free or on payment of a nominal charge.   

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Dr Arpita Mukherjee is a Professor at ICRIER. She has several years of experience in policy-oriented research, working closely with the Government of India and policymakers in the EU, US, ASEAN and in East Asian countries. She has conducted studies for international organizations such as ADB, ADBI, ASEAN Secretariat, FCO (UK), Italian Trade Commission, Konrad-Adenauer Stiftung (KAS), OECD, Taipei Economic and Cultural Centre (TECC), UNCTAD and the WTO and Indian industry associations such as NASSCOM, FICCI, IBA, IDSA and EICI. Her research is a key contributor to India’s negotiating strategies in the WTO and bilateral agreements. The views expressed here are her own.