i

Impact of Trade Liberalization on India’s Agricultural Trade

A research paper prepared under the project Agricultural Outlook and Situation Analysis Reports

National Council of Applied Economic ResearchParisila Bhawan, 11, I.P Estate, New Delhi

ii

Impact of Trade Liberalization on India’s Agricultural Trade

National Council of Applied Economic ResearchNew Delhi

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Impact of Trade Liberalization on India’s Agricultural Trade

Introduction

This report analyzes the trend in India’s agricultural trade, both imports and exports during the post-trade liberalization period.

The General Agreement on Tariffs and Trade (GATT), which culminated in the formation of the World Trade Organisation (WTO) on January 1, 1995, required all the member countries to adjust their trade and other domestic agricultural policies as envisaged under GATT. An important obligation of WTO members was to liberalize trade by removal of quantitative restrictions on trade and reduction in tariff rates. India as a founder member of the WTO was also committed in moving in the direction of trade liberalization in agricultural commodities.

Trade liberalization in India commenced with the Export-Import Policy for 1992-97. Since then quantitative restrictions (QR) on imports were phased out in stages and exports were liberalized, permitting increased private trade participation in exports and imports. The Export-Import Policy (1997-2002) amendments announced by the Minister of Commerce on March 31, 2001, removed QRs on India’s remaining restricted items including most agricultural products, thus complying with the Indian government’s WTO commitments.

Initially there was anxiety and apprehensions in India on the likely impact that trade liberalization on producers, consumers and the overall food security. To guard against any flood of imports, the government took various precautionary measures. A "Standing Group" comprised of Secretaries of concerned ministries and the Director General of Foreign Trade, was created which was to function as a "war-room" in tracking, collating and analyzing imports of sensitive items, mostly agricultural products.

Although agricultural trade tempo was slow in the initial stages of trade liberalization due to both high tariffs and non-tariff barriers, subsequently there has been a significant growth in India’s two way agricultural trade. While imports of various traditional and non-traditional food items such as vegetable oils, pulses, fruits, nuts, and processed food items recorded a steady growth, export growth in both traditional and non-traditional items such as rice, bovine meat, cotton, oilseed meal, sugar, maize, guar gum, fresh fruits, onions, dairy products and various processed food products was even more spectacular.

India’s imports of agriculture, fishery, meat, dairy and processed food items increased from $3.5 billion in 1999-2000 to $19.3 billion in 2012-13, almost a six-fold increase, whereas agricultural exports, both traditional and non-traditional increased from $5.7 billion in 1999-00 to $40.6 billion in 2012-13 – a seven-fold increase. The annual compound growth rate in imports was 16% and in exports around 17%. Thus India’s two way trade in agriculture and related products increased from $9.2 billion in the pre-trade liberalization period to $60 billion in 2012-13, a 6.5 fold increase. India’s positive trade balance in agricultural products increased ten-fold from $2.2 billion in 1999-00 to $21.3 billion in 2012-13 (Figure 1). However, the share of agriculture in India’s overall two way trade declined marginally to around 7.5% in 2012-13 from 10.6% in 1999-00.

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The initial apprehensions regarding the adverse impact of trade liberalization on the economy seems to have been misplaced and the country seems to have greatly befitted from trade liberalization. Although the impact of agriculture trade liberalization on farm income, agricultural productivity, consumer welfare, etc. would require a comprehensive study, which is beyond the scope of this report, apparently there seems to have been no significant ill effect, except for occasional price spurts or price dips in some commodities such as wheat, rice, maize, onion, sugar, etc. Furthermore, larger imports helped to contain the price increase in various food items such as vegetable oils, pulses, and fruits, thereby helping to contain the overall food inflation. However, there has been a definite shift in cropping pattern in favour of export-oriented agricultural and food products such as basmati rice, soybeans, cotton, maize, and some fruits and vegetables such as grapes, onion, etc. Trade liberalization also provided an impetus to the domestic food processing and fast food sectors as food processors and food chains now have increased access to various imported food products and ingredients and with the entry of several multinational companies and new domestic players an increasing export markets for their products.

Figure 1: Trends in Agicultural & Allied Food Products Trade and Trade Balance

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

0.05000.0

10000.015000.020000.025000.030000.035000.040000.045000.0

AG TRADE BALANCE AG EXPORTS AG IMPORTS

Mill

ion

US$

Import Trend

Table 1 shows trend in agricultural imports by major product groups during the post trade liberalization period. Among traditional imported food items, the largest increase was registered in vegetable oils (mainly palm oil, and soybean oil), pulses, and raw cashew nuts (mainly for processing and re-exports). However, imports of several new niche consumer food products also registered significant growth during the post trade liberalization period. These include dry fruits (mainly almonds and pistachios), fresh fruits (mainly apple, grape and pear), chocolates, wine, etc. The growing fast food chains in the country resulted in a small but growing imports of food products such as coffee, chocolate and cocoa products, milk products (mainly whey, cheese, and bread spreads), fish and fish products, sauces, pasta, wine and other alcoholic beverages, soft drinks etc. (Figure 2A and 2B)

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Table 1: Trend in agricultural imports by major product groups (million US$).

 1999-

002000-

012001-

022002-

032003-

042004-

052005-

062006-

072007-

082008-

09 2009-10 2010-11 2011-12 2012-13

Annual Gowth Rate %

Total Veg Oil 1,882.2 1,347.7 1,363.8 1,817.1 2,547.0 2,470.9 2,033.4 2,113.6 2,569.9 3,417.5 5,628.0 6,574.2 9,703.4 11,283.0 16.3%

Pulses 88.9 110.3 694.4 611.3 562.7 441.1 631.0 1,010.1 1,406.9 1,405.7 2,249.2 1,645.1 1,961.3 2,452.3 24.6%Raw Cashew Nuts Etc.

276.5 210.7 90.5 256.1 300.3 408.4 472.7 399.6 426.4 594.3 639.6 577.7 1,144.8 990.414.5%

Almonds, Other Nuts, Fresh or Dried

74.6 113.8 82.7 81.0 106.6 154.5 201.8 263.1 261.2 284.7 328.7 420.0 494.1 626.017.9%

Cane/Beet Sugar 256.3 7.0 6.8 6.8 13.7 217.3 147.2 0.8 0.6 117.2 1,270.4 609.3 63.8 568.1 24.4%Cotton 281.2 257.8 428.2 254.2 337.7 248.5 155.1 142.2 220.1 361.8 257.3 132.8 219.4 452.2 -1.3%Major Spices 37.0 35.9 69.1 79.1 74.9 79.8 91.9 95.8 135.6 113.6 139.4 150.6 251.6 284.2 14.7%

Fesh Fruits 9.7 14.5 21.1 17.9 25.8 26.2 36.8 53.0 79.1 102.7 127.4 179.3 254.8 284.7 29.9%Dates, Figs, etc. 48.7 43.5 52.0 30.2 36.7 52.2 69.0 98.5 110.9 104.7 139.2 180.2 194.6 211.7 15.4%Coffee 2.9 3.9 1.8 2.6 4.7 14.2 37.7 23.8 42.5 55.6 61.6 62.7 95.9 142.0 40.5%Chocolate & Cocoa Poducts

5.3 6.6 7.7 9.0 8.8 16.6 21.8 26.4 40.6 44.5 64.8 104.9 162.0 156.532.4%

Fish & Fish Products 7.1 5.3 4.4 3.5 5.5 8.1 11.7 15.3 22.6 35.4 28.2 64.2 83.8 47.2 26.4%Dairy Poducts 17.5 9.2 6.0 11.5 10.6 10.4 6.3 21.4 11.0 16.7 57.7 85.5 55.5 27.8 15.3%Other 539.7 309.2 412.0 386.4 386.9 663.3 937.6 2,050.5 1,668.8 967.5 1,256.7 1,437.3 1,714.5 1,772.1 14.8%Total

3,527.6 2,475.3 3,240.5 3,566.9 4,421.7 4,811.4 4,854.0 6,314.0 6,996.1 7,621.712,248.

112,223.

916,399.

219,298.

2 16.0%NOTE: OTHER INCLUDE TEA, OIL CAKES, FUIT JUICES, SPICES, OILSEEDS, WINE, ALCOHOLIC BEVEAGES, OILSEEDS, SOFT DRRINKS, PROCESSED FOOD, ETC.  

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Figure 2A: Trend in Imports of Traditional Food Items since Trade Liberalization

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

0.0

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0

12,000.0

TOTAL VEG OIL PULSESRAW CASHEW NUTS ETC. ALMONDS, OTHER NUTS, FRESH OR DRIEDCANE/BEET SUGAR MAJOR SPICES

Mill

ion

US$

Figure 2B: Trend in Imports of Major Non-Traditional Food Items since Trade Liberalization

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

0.0

50.0

100.0

150.0

200.0

250.0

300.0

FESH FRUITS DATES, FIGS, ETC. COFFEECHOCOLATE & COCOA PODUCTS FISH & FISH PRODUCTS DAIRY PODUCTSWINE OF FRESH GRAPES

Mill

ion

US$

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Export Trend

As far as export growth in major agricultural and allied products is concerned, significant gains were registered in raw cotton, rice, guar gum, bovine meat, spices, soybean meal, castor oil, maize and sugar. The most spectacular increase was in cotton, guar gum, buffalo meat, soybean meal which have emerged as the top most export items registering an annual compound growth of over 20%. A significant increase in cotton production since the introduction of Bt cotton about eight years ago has made cotton a leading export commodity in recent years. The demand for guar gum is growing mostly in the U.S. Inventory build up by companies like Halliburton and Schlumberger and a significant price rise in world market has resulted in a five to six fold increase in guar gum exports value during the past two years. With the removal of restrictions on wheat exports in 2011, wheat exports have also made significant gains during the past two years. India in recent years has become a leading exporter of buffalo meat, thanks to abundant supplies of unproductive buffalos and setting up modern slaughtering facilities.

Among traditional export products, cashew nuts, tea, coffee, and shrimp and fish products have registered a relatively modest growth due to increased competition from other major producing countries. New and emerging export products include onion, grapes, bakery products, milk and cream, tomato, jams and jellies, honey, barley, wheat flour, and various processed consumer food products. Table 2 shows the trend in exports of major agricultural and allied and processed food products

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Table 2: Trend in Agricultural Exports by Major Product Groups (million US$)

Commodity 1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

Annual Growth Rate%

Rice 721.4 644.3 665.6 1,218.3

907.0 1,506.5

1,405.2

1,556.9

2,927.6

2,454.1

2,365.7

2,544.7

4,940.4

6,216.0 17.7%

Cotton 11.2 13.5 5.6 9.9 165.2 79.5637.0

1,350.3

2,194.9

624.4 2,018.9

2,865.9

4,258.0

3,659.0 72.9%

Meat & edible meat offal 184.5 318.6 247.4 279.5 366.7 416.6 615.2 729.2 921.71,168.

31,322.

11,957.

72,908.

93,284.

5 24.5%Guar gum 212.7 153.0 124.4 144.3 154.8 214.9 302.8 334.7 361.8 403.8 351.3 769.4 3,533.

34,182.

2 25.2%

Shrimp & fish1,163.

91,376.

41,217.

71,397.

51,236.

31,314.

01,421.

21,563.

31,487.

71,292.

11,815.

52,321.

03,286.

43,322.

7 7.2%Oilmeal

377.9 447.3 474.3 308.7 728.1 699.81,090.

31,200.

91,998.

22,251.

61,658.

82,437.

92,420.

53,038.

6 19.5%Wheat and meslin 0.1 90.9 278.9 363.6 520.4 324.9 125.9 7.7 0.1 0.3 0.0 0.2 202.1 1,934.

2 -14.3%Cane/beet sugr 3.8 94.6 360.1 365.3 263.9 32.6 128.3 689.6 1,344.

21,037.

221.7 1,196.

21,836.

01,572.

0 30.7%Maize 1.1 6.0 19.1 14.0 77.1 160.2 71.4 110.7 615.0 765.4 536.5 740.3 1,058.

91,305.

3 63.3%Tea 403.5 424.3 345.8 328.2 337.8 389.9 371.1 406.3 482.8 555.7 598.2 707.6 811.9 828.3 6.9%Cashew nuts 593.3 449.1 375.4 425.2 370.9 552.6 585.4 552.1 553.4 648.0 604.2 642.8 959.7 787.6 5.0%Castor oil and other veg oils 226.0 198.8 150.0 120.5 159.2 284.6 233.3 259.7 421.4 506.5 497.9 665.5 982.8 824.1 15.3%Hps goundnut 85.8 69.3 52.6 36.8 118.5 121.8 116.0 176.7 263.5 276.1 302.4 480.5 1,093.

1747.4

24.6%Unmanufactured tobacco 187.4 144.8 122.0 152.6 174.4 209.2 230.7 276.3 355.8 600.8 763.3 692.3 602.8 701.4 16.0%

Spices 315.4 257.0 202.8 212.6 212.9 262.5 277.7 466.6 703.8 765.7 742.6 982.61,545.

91,315.

9 16.9%Coffee 264.3 175.9 145.7 146.3 162.4 169.6 254.1 316.5 337.7 356.7 270.0 485.9 701.6 593.8 10.9%

Onions, shallots, garlic 49.2 61.6 70.0 75.1 156.4 144.4 168.8 262.5 258.1 392.5 500.2 408.6 360.6 376.3 19.7%

Coffee & tea extacts 75.4 92.7 99.0 74.8 92.8 89.1 127.1 148.9 154.9 174.5 192.2 217.0 301.6 322.0 11.7%Bread, pastry, cakes, biscuits 5.8 7.8 9.8 17.9 41.4 50.6 70.4 75.6 95.5 145.5 114.3 161.0 235.8 247.1 33.9%

Pulses 96.9 117.8 77.7 72.9 73.2 135.2 254.0 174.0 136.0 118.2 87.0 191.5 228.0 236.4 6.9%

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Fresh fruits 66.0 67.5 75.8 74.6 153.1 172.6 236.6 303.1 341.1 416.0 455.7 444.1 506.5 588.3 20.9%Seeds & planting material 44.2 78.2 77.8 69.1 65.7 61.7 79.3 86.2 117.9 131.3 111.8 140.9 168.4 208.9 9.9%

Dairy products 11.1 21.5 38.9 25.7 19.4 84.0 147.6 89.3 188.3 211.3 81.1 114.9 51.4 253.6 19.7%Undnatrd ethyl alchl wth 13.0 30.7 20.8 18.4 18.4 20.3 46.1 47.4 72.8 98.4 103.8 156.9 268.4 314.0 26.7%

Vegetables 4.4 3.1 1.3 5.4 8.3 9.5 12.2 21.1 49.7 54.5 38.6 62.1 122.9 126.3 38.3%Jams frut jelly marmalds 4.4 6.1 7.4 7.4 10.3 9.3 24.1 27.7 43.4 58.6 63.0 58.6 82.9 85.2 28.6%Wheat or meslin flour 0.2 31.8 40.3 58.2 74.6 29.5 10.0 12.1 12.3 3.4 15.6 23.1 42.4 84.9 11.0% Coarse grains excluding maize

0.2 31.8 40.3 58.2 74.6 29.5 10.0 12.1 12.3 3.4 15.6 23.1 42.4 84.911.0%

Lactose, maltose, glucose etc

2.1 3.6 6.5 7.9 9.3 8.0 13.2 14.5 18.2 26.0 42.1 41.6 64.6 78.628.7%

Fruits nuts prepd/prsvd, 8.4 20.4 15.9 6.4 7.6 9.0 17.7 21.9 27.6 25.1 19.0 25.5 53.5 70.0 14.0%Natural honey 2.2 1.8 3.8 10.9 14.8 15.2 26.3 13.4 23.3 32.8 31.6 66.4 68.3 65.9 30.8%Starches; inulin starches 1.2 1.7 2.1 2.6 5.3 4.2 4.5 4.5 9.1 17.0 13.7 23.5 49.4 65.3 33.3%Sugr cnfctnry 4.7 4.9 6.0 7.9 12.2 14.8 20.6 26.1 29.7 36.3 35.8 50.5 65.1 58.8 24.2%Chocolate and poducts 3.0 2.1 2.8 2.5 4.0 4.0 4.2 7.2 9.5 12.9 11.5 15.2 22.6 42.5 23.4%Other

573.5 710.7 708.6 742.3 937.11,052.

61,244.

01,513.

22,099.

82,083.

32,014.

02,415.

62,790.

02,963.

7 22.7%Total agri and aliied products

5,718.1

6,159.1

6,092.3

6,861.3

7,733.9

8,682.7

10,381.9

12,858.2

18,668.8

17,747.6

17,815.6

24,130.3

36,666.9

40,585.2 16.8%

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Figure 3A: Export Trend in Major Traditional Agricultural Commodities (Million US$)

1999

-200

0

2000

-200

1

2001

-200

2

2002

-200

3

2003

-200

4

2004

-200

5

2005

-200

6

2006

-200

7

2007

-200

8

2008

-200

9

2009

-201

0

2010

-201

1

2011

-201

2

2012

-201

3

0

1000

2000

3000

4000

5000

6000

7000

RICE MEAT & EDIBLE MEAT OFFAL GUAR GUMCOTTON SHRIMP & FISH OILMEALWHEAT AND MESLIN CANE/BEET SUGR MAIZE

Mill

ion

US$

Figure 3B: Export Trend in Some Conventional Agricultural Commodities (Million US$)

1999

-200

0

2000

-200

1

2001

-200

2

2002

-200

3

2003

-200

4

2004

-200

5

2005

-200

6

2006

-200

7

2007

-200

8

2008

-200

9

2009

-201

0

2010

-201

1

2011

-201

2

2012

-201

3

0

200

400

600

800

1000

1200

1400

1600

1800

SPICES TEA CASHEW NUTS CASTOR OIL AND OTHER VEG OILSHPS GOUNDNUT UNMANUFACTURED TOBACCO

Mill

ion

US$

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Figure 3C: Export Trend in Some New and Emerging Agricultural Commodities (Million US$)

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

0

100

200

300

400

500

600

700

ONIONS, SHALLOTS, GARLIC COFFEE & TEA EXTACTSBREAD, PASTRY, CAKES, BISCUITS PULSESFRESH FRUITS DAIRY PRODUCTSUNDNATRD ETHYL ALCHL

Mill

ion

US$

Conclusion

Although agricultural trade tempo was slow in the initial stages of trade liberalization starting in 1992 due to both high tariffs and non-tariff barriers, subsequently there has been a significant growth in India’s two way agricultural trade. While imports of various traditional and non-traditional food items such as vegetable oils, pulses, fruits, nuts, and processed food items recorded a steady growth, export growth in both traditional and non-traditional items such as rice, bovine meat, cotton, oilseed meal, sugar, maize, guar gum, fresh fruits, onions, dairy products and various processed food products was even more spectacular.

Larger imports helped to contain the price increase in various food items such as vegetable oils, pulses, and fruits, thereby helping to contain the overall food inflation. However, trade liberalization also led to a definite shift in cropping pattern in favour of export-oriented agricultural and food products such as basmati rice, soybeans, cotton, maize, and some fruits and vegetables such as grapes, onion, etc. Trade liberalization also provided an impetus to the domestic food processing and fast food sectors as food processors and food chains now have increased access to various imported food products and ingredients.

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References

1. Directorate General of Commercial Intelligence and Statistics – www.dgciskol.nic.in2. Centre for Monitoring Indian Economy Pvt Ltd - http://www.cmie.com3. Agricultural & Processed Food Products Export Development Authority -

www.apeda.gov.in4. Agriwatch - Commodity Prices India, Commodity Markets – www.agriwatch.com5. India Pulses & Grains Association, Mumbai – www.ipga.co.in6. Food and Agriculture Organisation - www.fao.org7. United Nations Commodity Trade Statistics Database - www.comtrade.un.org

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