COME

SUBMITTED BY: SUBMITTED TO:

Dhwani Joshi Dr. R. S. Pundir
Haiyumkhan Pathan
 INTRODUCTION
 The question of competitiveness of Indian agriculture has
assumed great importance in the light of WTO agreement on
agriculture.
 In certain quarters there is a feeling that since India is
endowed with rich natural resources, fertile land, rich soils,
many snow fed and monsoon rivers, large river valleys, mild
tropical and sub-tropical climate and sufficient rainfall, it
could be one of the most efficient producers of agricultural
commodities.
 Indian farmers have acquired a great deal of knowledge and
skills and are efficient enough to be able to become
internationally competitive.
 Identification and enhancement of competitiveness is , in fact
, the essential ingredient of a successful trade strategy.
AGRICULTURE IN THE CHANGING
GLOBAL SCENARIO
 Global competitiveness is the ability to produce
globally acceptable quality at globally comparable
cost.
 Steady globalization of trade has profound
implications for future agricultural development.
 The diversity of India’s agro-ecological setting, high
bio-diversity and relatively low cost of labour provide
potential for agricultural competitiveness in a
globalized economy.
 It is expected that with increasing globalization of
markets over the years there will be demands for
agricultural intensification.
India’s changing Agri. exports &
imports

Source: Agricultural Statistics at a Glance 2008

Agri. exports & imports as % of
agri. GDP

Source: Agricultural Statistics at a Glance 2008

COMPARATIVE ADVANTAGE AND
COMPETITIVENESS:
 Comparative advantage is widely believed by
economists to be a key determinant of
international production and trade patterns.
 In business schools and business circles much
greater emphasis is placed on the role of
competitive advantage as a predictor of the
economic fortunes not just of firms, but of
nations as a whole.
 Comparative advantage is used to determine the direction of
trade.
 Competitive advantage impacts on resource allocation, trade
patterns and trade volumes.
 Comparative advantage (of a country or firm, for example) is
given by the access to certain resources that others don't have.
Usually this is related to natural resources. Here it doesn't
matter if you are or are not the owner.
 Competitive advantages are created by combining different
resources, primarily knowledge. In management this is
equivalent to "rise barriers" for competitors, in the sense that a
true competitive advantage is that one that is difficult to be
copied by the competitors (although not impossible.)
 Due to the nature of the comparative advantages, it is usually
said that they provide you a "static" advantage, something
that others can surpass by using their competitive advantages,
which are said to be "dynamic."
Major Agricultural Exports: %
distribution (Diversified basket)

Source: Agricultural Statistics at a Glance 2008,

Government of India
Major Agricultural Imports:%
distribution(concentrated basket)

Source: Agricultural Statistics at a Glance

2008, Government of India
MEASUREMENT OF
COMPETITIVENESS:

 Net Protection Coefficient (NPC)

 Effective Protection Coefficient (EPC)
 Effective Subsidy Coefficient (ESC)
 Domestic Resource Cost (DRC)
NOMINAL PROTECTION COEFFICIENT(NPC)
The nominal protection coefficient (NPC) is a
measure of competitiveness. It is calculated as the ratio
between the domestic price (PD) to the international price
(PR) of a comparable grade of commodity, adjusted for all
transfer costs such as freight, insurance, handling costs,
margins, losses, etc. Symbolically, it is given by Equation:

PD
NPC=
PR

If NPC<1, Commodity is competitive

If NPC>1, Commodity is not competitive
NPC of Groundnut
Year NPC
1985-86 1.46
1986-87 1.58
1987-88 1.44
1988-89 1.8
1989-90 1.76
1990-91 1.76
1991-92 1.56
1992-93 1.26
1993-94 1.22
1994-95 1.15
1995-96 0.97
1996-97 1.04
1997-98 0.76
1998-99 0.73
1999-2000 0.63
2000-01 0.67
2001-02 0.46
2002-03 0.6
2003-04 0.49
2004-05 0.47
Source: Pre and post WTO changes in oilseed
 NPC of Groundnut
2

1.8

1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
 NPC of Tea
Year NPC
1986 1.7
1987 1.9
1988 1.7
1989 1.29
1990 1.37
1991 0.84
1992 0.79
1993 0.82
1994 0.79
1995 0.87
1996 0.78
1997 0.91
1998 0.91
1999 0.8
2000 0.68
2001 0.6
2002 0.54
2003 0.61
2004 0.62
 NPC of Tea
2

1.8

1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
Price Competitiveness of Indian
Rice (NPCs)

Source: Hoda and Gulati, 2008 (WTO, Agricultural Negotiations, and Developing
Countries: Lessons from the Indian Experience, OUP/JHUP)
Wheat Trade and Protection (NPC) in
India 1981-2005

Source: Hoda and Gulati, 2008 ( WTO, Agricultural Negotiations, and Developing
Countries: Lessons from the Indian Experience, OUP/JHUP)
 EFFECTIVE PROTECTION COEFFICIENT (EPC)

The effective protection coefficient (EPC) is a ratio of value-added in

domestic prices (i.e., the prices paid and received by growers) to its
value-added in world prices (border prices). This coefficient indicates
the degree of policy transfer arising with output and tradable input
policy distortions. An EPC greater than one indicates that the sector
receives a "net" subsidy for its activities. Conversely, if the EPC is
less than one, it indicates that the sector is penalized by a net
taxation when both tradable input and output distortions are
accounted for.

EPC= Value added of commodity at domestic prices

Value added at world reference price

The difference between NPC and EPC is that EPC takes output
prices and cost of traded inputs in to accounts simultaneously. Since
the EPC includes inputs, it is potentially a more encompassing
assessment of the protective structure of intervention.
 INTERPRETING EPC

If EPC > 1, domestic producers are receiving a greater return on their

resources given intervention then they would without intervention. They are
enjoying positive protection.

If EPC < 1, domestic producers could have received a higher return if the faced
border prices instead of domestic prices on both inputs and outputs. They are
receiving negative protection.

If EPC = 1, Producers are neither favored nor discriminated against. The

structure of protection is neutral.
 EPC of Milk
10

0
 EFFECTIVE SUBSIDY COEFFICIENT (ESC)

ESC is an attempt to enlarge further information content of the EPC by

explicitly taking into account the taxes or subsidies applied to primary
input such as land and capital.

Value added in domestic prices ± Net subsidies on primary inputs

ESC =
Value added at border prices
 DOMESTIC RESOURCE COST (DRC)
DRC is the value of domestic resources needed to save or earn a
unit of foreign exchange through the production of a commodity.

Where,
aij, j = k + 1 to n, are the technical coefficients for domestic
and non-tradable inputs.
Vj are the shadow prices of domestic resources and on-
tradable inputs.
Pir are the border/reference prices of traded output.
aij, j = 1 to k are the technical coefficients for traded inputs
and are the border/reference pricesof traded inputs.
Pjr : are the border/reference prices of traded inputs.
DRC<1 indicates that the country has the comparative
advantage in the production activity of the product.

DRC>1 indicates negative social profits.

 DRC of Groundnut
1.4

1.2

0.8

0.6

0.4

0.2

0
 IMPORT AND EXPORT
COMPETITIVENESS OF INDIAN
AGRICULTURE:
 This is done to analyze the competitiveness of some
important agricultural crops by making use of the above
measures of competitiveness.
 For import competitiveness the only measure that is
employed is a Net Protection Coefficient (NPC).
 All the four measures of competitiveness namely, The Net
Protection Coefficient (NPC), Effective Protection
Coefficient (EPC), Effective Subsidy Coefficient (ESC) and
the Domestic Resource Cost (DRC) have been used to work
out the export competitiveness of various crops at the
state level.
How can we enhance competitiveness of
Indian agriculture?

 Raise investments in R & D and rural

infrastructure (roads, irrigation, markets etc.),
public and private.
 Contain subsidies on fertilizer, power and
water leading to huge inefficiency.
 Improve fragmented value chains by
mainstreaming small holders.
Abrol, I. P. Agriculture in India. Centre for advancement of sustainable
Agriculture.
Bhalla, G.S., State of the Indian Farmer- A millenium study Vol. 19, pp. 241
to 271.
Candler, W., India: the dairy revolution the impact of dairy development In
India.
Chandrashekhar, G. Can Indian agriculture become globally competitive?
(Sep. 2002) The Hindu business line.
Gill, S.S. and Brar, J.S., Global market & competitiveness of Indian
Agrriculture.
Hoda and Gulati, 2008 ( WTO, Agricultural Negotiations, and Developing
Countries: Lessons from the Indian Experience, OUP/JHUP)
Karnool, N.N. and Naik, A.D., Pre and Post WTO changes in oilseed
economy of Karnataka.
Nagoor, B.H., Performance of India’s Tea exports, A comparative study of
major tea exporting countries of the world.
Peter Neary, Competitive versus comparative advantage.
Saxena, R., Competitiveness of Indian Dairy sector, IRMA.
YOU