2011

Globalization in Indian AgroIndustry

10/18/2011

ABSTRACT
India is the second largest producer of food in the world: more than 200 million tonnes of food grains, 150 million tonnes of fruits and vegetables, 91 million tonnes of milk, 1.6 million tonnes of poultry meat, 417 million livestock, and 6.05 million tonnes of fish and fish products. India at present is selfsufficient in food and has stocks of some 34 million tonnes of wheat and rice. In terms of total annual output of wheat, rice and rapeseed, the nation ranks highly in the world. However, average yield per hectare is poor. India has done very little reforms in agriculture to enable private and individual economic initiative that would help harness the benefits of globalisation. Despite this, Indian agro-industries had benefited substantially from whatever little globalisation that has been allowed in Indian agriculture. The farmers that got the exposure to global links of markets, technology and investment, benefited in terms of improving their yields, getting better prices and secured off takes. The Indian agriculture has made great strides over the years. The food grain production has increased more than fourfold - from 51 million tonnes in 1950-51 to 212 million tonnes during 2003-04 growing at an annual average rate of more than 2.4 percent per annum. India has been both an importer and exporter of agricultural commodities for a very long time. Indias agro-industries exports were growing at a rate of only 0.78 percent per annum during the period from 1961 to 1971. The economic liberalization and trade reforms introduced in 1991, helped India accelerate the growth rate of exports to 7.42 percent per annum. But as every coin has two sides, thus same has globalization on Indian agro industries. Globalization has caused misery and despair among millions of Indian farmers, driving large numbers of them to suicide. With a view to open India's markets, the liberalization reforms also withdrew tariffs and duties on imports, which protect and encourage domestic industry. By 2001, India completely removed restrictions on imports of almost 1,500 items including food. As a result, cheap imports flooded the market, pushing prices of crops like cotton and pepper down.

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INTRODUCTION
The Indian agro-industries have been undergoing economic reforms since the early 1990s in the move to liberalize the economy to benefit from globalization. India, which is one of the largest agriculturalbased economies, remained closed until the early 1990s. It is expected that the combined effect of the reforms in the domestic policies and international trade reforms would result in a much larger integration of the Indian economy with the rest of the world, and such a scenario would bring about substantial benefits to the Indian farmers. India is the second largest producer of food in the world: more than 200 million tonnes of Food grains, 150 million tonnes of fruits and vegetables The Indian agro-industries has made great strides over the years. The food grain production has increased more than fourfold - from 51 million tonnes in 1950-51 to 212 million tonnes during 2003-04 growing at an annual average rate of more than 2.4 percent per annum.

WHY GLOBALIZE?
Agriculture is the important of Indian Economy because of its high share in employment and livelihood creation to the nation's GDP. The share of agriculture in the gross domestic production equals to 28.3% in 1991 and 16% in 2010-2011. This sector continues to support more than half a billion people providing employment 52% of the workforce. It is also an important source of raw materials and demand for many industrial products and a variety of consumer goods. The liberalization of Indias economy was adopted by India in 1991. Facing a severe economic crisis, India approached the IMF for a loan, and the IMF granted what is called a structural adjustment loan, which is a loan with certain conditions attached which relate to a structural change in the economy. The government ushered in a new era of economic reforms based on these conditions. These reforms (broadly called Liberalization by the Indian media) can be broadly classified into three areas: Liberalization, privatization and globalization. Essentially, the reforms sought to gradually phase out government control of the market (liberalization), privatize public sector organizations (privatization), and reduce export subsidies and import barriers to enable free trade (globalization). However, economic reforms within India are necessary to pave the path to successful globalization. Although initially, with respect to agro-industries, there was no major policy reform package in the 1990s, it was however anticipated that the opening up of the agricultural to foreign trade, the move to a market determined exchange rate and reduction of protection for industry would, over time, benefit the agricultural as a whole. Globalization in the context of agro-industries can be best discussed in the context of three components improvement of productive efficiency by ensuring the convergence of potential and realized output, increase in agricultural exports and value added activities using agricultural produce, and finally, improved access to domestic and international markets that are either tightly regulated or are overly protected. These components are linked in various ways. For example, productive efficiency would enhance value added activities in agro-industries through agro-processing and exports of agricultural and agro-based products. These activities in turn would increase income and employment in the industrial processing sector. Thus globalizing agro-industries has the potential to transform subsistence agriculture to commercialized agriculture and to improve the living conditions of the rural community.
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GLOBALIZATION OF AGRO-INDUSTRIES AND ITS EFFECT

Productivity gains from globalization and economic reforms
In the wake of Indias efforts towards globalization and economic reforms, the expected benefits of total factor productivity (TFP i ) growth can be represented using the production frontier. The production frontier traces out the maximum output obtainable from the use of inputs. In the figure below, F1 and F2 are the production possibility frontiers in time 1 and 2 respectively. Opportunities from globalization and economic reforms lead to: a) Shift from A to B due to technical efficiency b) Shift from B to C on existing frontier due to input growth c) Upward shift from C to D due to technological progress

The movement from A to B led by technical efficiency allows increases in output when inputs and technology are used to their fullest potential to obtain the greatest yield. The increased production w enabled a better utilization of inputs, especially that of advanced capital technology. The reduction in the tariff rates for agricultural products from 113 per cent in 1990-1991 to 26 per cent in 1997-1998 motivated local producers into rethinking their production techniques and efficiently utilizing the inputs and technology to keep costs of production down in order to remain competitive. The scale of output under increased exports justified the huge fixed costs underlying technologically advanced equipment and hence increased incentives to adopt high quality inputs. The use of such inputs resulted in technological progress and this is represented by the shift from C to D. This means that farmers now have relatively cheaper access to imported new technology and better capital equipment as well as the option of adopting better farming techniques and this should lead to technological progress. Form the given graph from economy survey 2010-11, it can be easily inferred that due to globalization there is significant growth in the food grains production

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. After liberalization of Indian market in 1991, there is sudden increase of 46.8 million tonnes; an increase of 36.33%.

AGRICULTURAL GROWTH AND PERFORMANCE: AN ECONOMY-WIDE ANALYSIS

Although Indias economic reforms were initiated in June 1991, the process of liberalization was implemented gradually and thus it is difficult to assess the full impact of the liberalization measures. Indias share in world exports was 0.6 per cent in 1997; for the last decade or so, Indias share in world exports of agriculture products has been between 2 per cent and 3 per cent.

Exports
India has been both an importer and exporter of agricultural commodities for a very long time. Indias agricultural exports after growing at a rate of only 0.78 percent per annum during the period from 1961 to 1971; registered a steep hike during the period between 1971 to 1981 increasing at an annual average growth rate of 18.36 percent. During the decade of 1980s the growth rate of exports again plummeted to 2.24 percent per annum. The economic liberalization and trade reforms introduced in 1991, helped India accelerate the growth rate of exports to 7.42 percent per annum. India has a large potential to increase its agricultural exports in a liberalized world provided it can diversify a significant part of its agro-industries in to high value crops and in agro-processing. This would depend first on undertaking large infrastructure investment in agro-industries and agro
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processing as also in rural infrastructure and research and development. India has not only to create export surplus but also to become competitive. (Appendix A-Table1) India has a strong institutional and human resource base in science and technology which is fully capable of bringing about a technological transformation of agro-industries, paving the way for a rainbow revolution. India is now adequately prepared for the quarantine as well as quality war against our products in the world market. India had created world-class referral laboratories at many places forcing the many big companies of world to move to India market.

Imports
Indias agricultural imports have displayed extreme fluctuations, with sudden surge in imports during the mid 90s. In the post 1995-96 periods, the fluctuations in imports have varied in the range of 58 per cent to (-) 29 per cent. The percentage share of agricultural imports in total imports also has shown very high volatility, having moved in the range of 28 percent to less than 2 percent during the same period. There was, in fact, a negative growth of 29 per cent in 2000-01 but since then, agricultural imports have grown at a relatively high rate of about 23, 22 and 27 per cent in 2001-02, 2002-03 and 2003-04 respectively. Import of pulses, which used to vary in the range of 3-6 lakhs tonnes in recent years except in 1997-98, when over 1 million tonnes were imported, surged to over 2 million tonnes in 2001-02 and has been close to that level since then, essentially reflecting shortage of domestic production. Similarly, import of edible oils surged from 1 million tonnes in 1995-96 to over 4 million tonnes in 1999-2000 and has since been moving in the range of 4.2 to 5.3 million tonnes per year, accounting for about half of domestic consumption. Thus on balance, while after 1996 there was a deceleration in export growth; the agricultural imports have shown an increase. In fact the gaps between agricultural exports and imports have been narrowing down in recent years. (Appendix A-Table2)

The Debt trap: High Input Costs Seeds:

Before liberalisation, farmers across the country had access to seeds from state government institutions. The seed market was well regulated, and this ensured quality in privately sold seeds too. With liberalization, Indias seed market was opened up to global agribusinesses like Monsanto, Cargill and Syn Genta. These hit farmers doubly hard: in an unregulated market, seed prices shot up, and fake seeds made an appearance in a big way. Expecting high yields, farmers invest heavily in such seeds. Also BT Cotton and other new seeds guarantee a much lower germination rate of 65% as opposed to a 90% rate of state certified seeds. Hence 35% of the farmers investment in seeds is a waste. The abundant availability of spurious seeds is another problem which leads to crop failures. Either tempted by their lower price, or unable to discern the difference, farmers invest heavily in these seeds, and again, low output pushes them into debt. Earlier, farmers could save a part of the harvest and use the seeds for the next cultivation, but some genetically modified seeds, known as Terminator, prevent harvested seeds from germinating, hence forcing the farmers to invest in them every season. One measure of the liberalisation policy which had an immediate adverse effect on farmers was the devaluation of the Indian Rupee in 1991 by 25% (an explicit condition of the IMF loan). Indian crops became very cheap and attractive in the global market, and led to an export drive. Farmers were encouraged to shift from growing a mixture of traditional crops to export oriented cash crops like chilli, cotton and tobacco. These need far more inputs of pesticide, fertilizer and water than traditional
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crops. Liberalisation policies reduced pesticide subsidy. With a view to open Indias markets, the liberalization reforms also withdrew tariffs and duties on imports, which protect and encourage domestic industry. As a result, cheap imports flooded the market, pushing prices of crops like cotton and pepper down. Import tariffs on cotton now stand between 0 10%, encouraging imports into the country. This excess supply of cotton in the market led cotton prices to crash more than 60% since 1995. As a result, most of the farmer suicides in Maharashtra were concentrated in the cotton belt till 2003. Similarly, Kerala, which is world renowned for pepper, has suffered as a result of 0% duty on imports of pepper from SAARC5 countries. Pepper, which sold at Rs. 27,000 a quintal (AUD 771) in 1998, crashed to Rs. 5000 (AUD 142) in 2004, a decline of 81%. As a result, Indian exports of pepper fell 31% in 2003 from the previous year. Combined with this drought and crop failure has hit the pepper farmers of Kerala hard, and have forced them into a debt trap.

CONCLUSION
As the analysis, the various data shows that India stands to gain from liberalization. Although India missed the opportunity opening the market in 1991, but stills Indian Agro-industries can gain a lot and must be regarded as better late than never. It is quite evident from the analysis that agro-industries missed the opportunity in the early days of liberalization, but Indian agro-industries grew in later stages attaining the growth percentage up to 18%. But as globalization opened the Indian market, polices regarding the import and export changed a lot. These changes brought the policies regarding the importing the seeds and fertilizers and these changes caused the adverse effects on the Indian farmers may leading them to suicide. In short run, Indian market provides a good market for both Indian and foreign industries. In longer run, there is need to develop information systems with which Indian agriculture can respond quickly in a globalising phase and that the knowledge gap with respect to the opportunities

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REFERENCES
Desai, M., 1999. What should be Indias economic priorities in a globalized world? Indian Council for Research on International Economic Relations, New Delhi. Kalirajan, K.P., G. Mythili and U. Sankar, eds. 2001. Accelerating Growth Through Globalization of Indian Agriculture, Macmilan, India.

Sainath, P 2005, No lessons from past mistakes, The Hindustan Times, viewed 4 June, 2006. http://www.hindustantimes.com/news/specials/farmersuicide/index.shtml

Government of India (2001): Economic Survey (various issues), Ministry of Finance, New Delhi.

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APPENDIX A
Table 1- Exports of Agricultural Commodities from India (Value in Million US$) Year 1960-61 1970-71 1980-81 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1999-99 1999-00 2000-01 2001-02 2002-03 2003-04 Total Exports 1348 2031 8484.7 18145 17865 1537 22238 26331 31795 33470 35006 33219 36822 44560 43827 52719 63843 Agricultural Exports Agr Exports as % of Total Exports 596 44.21 644 31.71 2600 30.64 3354 18.49 3203 17.93 3136 16.92 4028 18.11 4226 16.05 6082 19.13 6863 20.5 6626 18.93 6035 18.17 5773 15.68 6256 14.04 6146 14.03 6962 13.21 7888 12.36

Table 2 -Indias Imports of Selected Agricultural Commodities 1990-91 to 2001-02 (in US

million $)
Year 1990-91 1991-92 1993-94 1994-95 1998-99 1999-00 2000-01 2001-02 Rice 4 18 3 0 6 3 2 Wheat 0 40 0 266 179 2 1 Cereals 102 66 35 26 25 222 19 18 Pulses 268 121 186 199 322 82 109 663 Sugar 5 0 0 727 127 256 7 7 Fruits and nuts* 41 41 69 100 155 136 176 158 Milk/Cream* 3 3 5 2 1 25 2 2 Cashew Nuts 75 108 154 220 207 276 211 90 Crude Rubber 126 74 109 118 160 143 152 174 Wool raw 102 80 119 112 161 114 100 131 Cotton Raw 0 2 6 161 22 289 259 430 Jute raw 11 2 11 20 14 32 18 20 Vegetable Oils 182 101 53 199 745 1857 1334 1356 Pulp and W Paper 255 121 151 202 284 256 282 295 Agr Imports 915 598 805 1884 3292 3432 2388 3049 Agr Exports 3354 3203 4028 4226 6626 5773 6256 6154 Total Imports 24075 19411 23306 28654 41484 49671 50536 51413 Total Exports 18143 17856 22238 26330 35006 36822 44560 43827

TFP growth is productivity growth related to the use of all inputs in production and is given by the residual of output growth not accounted for by input growth.

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