RCEP: A White Revolution for exports

Financial Express, December 7, 2019

By Debesh Roy

India’s decision not to join the Regional Comprehensive Economic Partnership (RCEP) in its present form has brought a sense of relief in the dairy industry. Fear of the country being flooded with imports of dairy products from New Zealand and Australia triggered jitters in the dairy sector, which is dominated by small-farmer oriented cooperative sector.

There was unwillingness on the part of fifteen members of RCEP to engage in serious negotiations with India on its proposals for safeguards, viz an auto-trigger mechanism that would allow India to raise tariffs in cases of surge in imports of products that cross a certain threshold, rules of origin, and a 2014 base year for tariff reductions instead of 2013, to safeguard its steel and dairy industries, along with the demand for market access to India’s services exports. Hence, India had no other option but to withdraw from the largest Regional Trade Agreement (RTA) in the world.

According to the High Level Advisory Group (HLAG) set up by the Ministry of Commerce, Government of India (GoI), lack of competitiveness of India’s exports acts as a major bottleneck in tapping potential from trade enabled through FTAs/RTAs. Therefore, considering India’s objective of becoming an export-led $5 trillion economy by 2024-25, it is high time our industries (including dairy) become globally competitive and enter into FTAs/ RTAs to take the country’s exports to a much higher trajectory, and, in the process, enable substantial rise in the income of small dairy farmers.

The globally acclaimed ‘White Revolution’ had enabled India to become the largest producer of milk in the world. At 176 million tonnes (MT) the country produced about 20% of the global milk output in 2017-18. However, with exports of dairy products valued at $197.27 million in 2018, India ranked 38th in the world, with a share of 0.26% of global exports ($74,519.60 million). This compares poorly vis-à-vis Germany, the largest exporter in the world, which exported dairy products valued at $9,459 million in 2018. Exports of dairy products by RCEP members New Zealand and Australia were valued at $8,865.42 million (third rank) and $1,896.17 million (12th rank), respectively. India’s low value of dairy exports may be attributed mainly to high domestic consumption demand for milk and milk products, very low yield of milk output (1.1 tonnes/animal compared to 3.9 tonnes/animal and 5.9 tonnes/animal for New Zealand and Australia, respectively), and low exportable surplus of processed dairy products due to increasing demand in urban areas.

The importance of the dairy sector in India can be gauged from the fact that it is dominated by 16 million small milk producers who supply their milk to 1,85,903 dairy cooperative societies across the country, providing livelihood support to millions of families. However, about 81% of Indian dairy and milk processing market is part of the unorganised sector, which produces milk under unhygienic conditions. This reduces the overall quality and nutrition levels of the milk produced, thereby further restricting exportable quantity of dairy products. Also, the sector lacks proper infrastructure for milk preservation, processing and transportation in most states.

India’s export of dairy products is led by Gujarat Cooperative Milk Marketing Federation Ltd (Amul), which exports sixteen dairy products to USA, Australia, New Zealand, and countries in South Asia, Southeast Asia and the Middle East. Amul, along with Mother Dairy, and private and multinational dairy companies can become globally competitive by strengthening and modernising their already professionally managed and efficient dairy value chain. There is also a need for milk marketing federations of all states to modernise value-chain infrastructure with a view to producing high value dairy products efficiently.

In this context, GoI has created a corpus of Rs 8,004 crore with NABARD under Dairy Infrastructure Development Fund (DIDF) to provide loans to National Dairy Development Board (NDDB) / National Cooperative Development Corporation (NCDC) for on-lending to eligible cooperative milk unions, state cooperative dairy federations, multi-state milk cooperatives, milk producer companies, and NDDB subsidiaries, with the objective of modernising and augmenting dairy infrastructure for milk processing and value addition while ensuring optimum price realisation by the primary producers.

The apprehension that signing of RCEP agreement would flood the Indian dairy market with cheaper imports from New Zealand and Australia is based on the admission that Indian dairy industry is not yet ready to face global competition. Presently, imports of dairy products form these countries is minuscule, and India had a trade surplus of dairy products with Australia during the last three years as well as with New Zealand in 2018-19 (see graphic).

However, had India decided to join RCEP, the trade balance with these countries would have turned negative. New Zealand exports 95% of it dairy products, and about 84% of its milk supply is controlled by Fonterra, the largest exporter of dairy products in the world. Fonterra has already entered the Indian market by way of an equal joint venture with Future Consumer, offering a wide range of nutritional dairy products targeted at urban Indian consumers. Fonterra is also one of the world’s largest investors in dairy innovation and has one of the largest R&D facilities in the world. The Fonterra Future Dairy plans to become one of the top four dairy players in India within the next four to five years. Therefore, the likes of Amul and Mother Dairy need to raise their spending on R&D significantly, to compete with global leaders like Fonterra.

In order to boost export of dairy products, GoI needs to consider development of Dairy Export Zones (DEZs) in collaboration with state governments, in leading milk producing states like UP, Rajasthan, Gujarat, Andhra Pradesh, Punjab, Maharashtra, MP, Haryana, Tamil Nadu, and West Bengal. Such zones would involve creation of common infrastructure like cold chain, chilling plants, processing facilities, R&D facilities, logistics, and connectivity to ports and airports. Dairy producers in the cooperative, private, and multinational sectors would need to set up modern hi-tech dairy processing units in the DEZs, for producing high quality products for the global market.

The dairy producing units in the suggested DEZs can enter into contract farming arrangements with dairy farmer producer organisations (FPOs)/ farmer producer companies (FPCs) for sourcing milk. Such an arrangement would be mutually beneficial in terms of cost efficiency and higher export revenue to the dairy companies, and higher income to farmers. State governments, therefore, need to enact the model Agriculture Produce and Livestock Contract Farming (Promotion and Facilitation) Act, 2018, urgently.

The Ricardian theory of comparative advantage has showed why there are significant benefits from globalisation. Therefore, if India’s dairy sector becomes globally competitive, it can benefit from its comparative advantage when it chooses to join RCEP or any other RTAs/FTAs in the future.

The author is senior officer at NABARD
Views are personal

 

COP26: India must commit to landmark Koronivia Joint Work on Agriculture

Financial Express, January 20, 2020

By Debesh Roy

After a lacklustre COP 25 in Madrid, the expectations from COP 26 in Glasgow (November 2020) are high, on an agreement on the carbon markets promised in Paris, on the recommendations of the report on the landmark Koronivia Joint Work on Agriculture (KJWA). Topics critical to agriculture are expected to be addressed by KJWA.

While agriculture remains vulnerable to climate change effects—low productivity and food production are areas of concern—it also contributes 23% to global GHG emissions. Economic development, growing population and poverty reduction will lead to a higher demand for cereals, proteinaceous food items, fruits and vegetables, triggering more intensive use of water and other natural resources. This will cause GHG emissions to spike. It needs to be understood that KJWA has the potential to transform agricultural and food systems, while enabling the overall achievement of Sustainable Development Goals (SDGs) by 2030. Bold action is called for at COP 26.

According to the UN’s Emissions Gap Report 2019, India, along with Russia and Turkey, is projected to surpass it sits NDC target emission levels by 15%, and has room to raise its NDC ambition significantly. Whether it engages fruitfully with the KJWA proposals remains to be seen.

FAO estimates that, while agriculture accounts for 70% of total global freshwater withdrawals, food production and supply chain consumes about 30% of global energy consumption. India has been witnessing fast depleting groundwater resources, resulting from widespread use of pump-sets for irrigation, powered by heavily subsidised electricity, and highly polluting diesel. Groundwater Year Book 2017-18 had estimated that almost the entire country is experiencing depletion in groundwater level, with the maximum decline in parts of Rajasthan, Haryana, Punjab, Gujarat, Telangana, and Maharashtra. A World Bank report had predicted that ~60% of aquifers in India will be in a critical state by 2032.

Perverse subsidies on farm power supply in India over the last four decades, have not only made irrigation by deep tube-well profitable for farmers, but have, in fact, incentivised wastage of energy, too. This has also been exacerbated by the skewed procurement policies in favour of rice and wheat in Punjab and Haryana. However, while this had led to significant increase in production and productivity of paddy and wheat in Punjab, Haryana and western Uttar Pradesh during the Green Revolution period, there is evidence of stagnation in productivity.

The Nabard-Icrier report, Water Productivity Mapping of Major Indian Crops, argues that Punjab and Haryana, which require more irrigation water input to produce unit output of paddy, are less suited for rice production, as compared to the eastern region. Therefore, the report has recommended re-aligning cropping pattern with available water resource endowments across states. One of the fallouts of the paddy-wheat cycle in Punjab and Haryana is the problem of paddy stubble burning and its toxic air pollution effect.

Watershed development is of critical importance, as is evident from the participatory watershed development programme being implemented by Nabard since 1992. Further, ITC’s Integrated Watershed Development showcases the role corporate sector can play in soil and moisture conservation.

Sustainable solutions for water use efficiency like System of Rice Intensification, Sustainable Sugarcane Initiative, Better Cotton Initiative with drip irrigation need to be mainstreamed. Further, precision agriculture through AI and IoT can contribute to meet the challenges to food security.

Electricity subsidy for irrigation needs to be phased out. A sustainable alternative is the use of solar energy for irrigation. A viable model of “solar trees” in farms where farmer producer organisations (FPOs) can own solar panels as source of irrigation and also income for farmers by selling power to the grid, needs to be promoted. This could necessitate tripartite agreements between FPOs, discoms (for power purchase) and banks (for financing FPOs). This model, along with ministry of non-renewable energy’s KUSUM scheme, Gujarat government’s Suryashakti Kisan Yojana, and other projects, would help achieve the target of 175 GW renewable energy by 2022. Experiments on solar-wind hybrid energy pump-sets also should be implemented on the ground and scaled up. However, there needs to be self-regulation through AI-based sensors in drawing of groundwater.

The Stern Review Report (2006) had called for urgent and transformative actions for addressing the challenges of adaptation and mitigation of climate change faced by agriculture. The Water-Energy-Food nexus approach of FAO envisions a balance between different goals, interests and needs of people and the environment in a sustainable manner. This approach enables demystification of the complex and dynamic interrelationships between water, energy and food, so that limited resources can be managed sustainably. Therefore, the Central and state governments in India, along with financial institutions, research agencies and corporate entities, need to provide adequate resources towards research and adoption of climate smart agriculture and WEF nexus approach, to enable the country to achieve SDGs by 2030. This should be at the top of India’s agenda at COP 26.

The writer is senior officer at Nabard. Views are personal

 

Green development: Strategising mitigation of agricultural methane emissions

By Debesh Roy

Financial Express, August 24, 2020

The challenge of green development should encourage nations to make concerted efforts to achieve the goal of restricting GHG emissions to 1.5% above pre-industrial levels set by the Paris Agreement and also achieve SDGs by 2030.  For achieving the 1.5% goal, emissions must drop 7.6% per year till 2030. The Paris Agreement aimed at securing commitment by countries to enhance their NDCs by 2020. According to the Emissions Gap Report, 2019 of UNEP, India, Russia and Turkey are projected to achieve 15+% lower than the NDC target emission levels, giving them enough room for raising their NDC ambitions significantly.

While the focus of Paris Agreement and the NDCs was on CO2 emissions from energy use and industry, which dominate total GHG emissions, reaching a record 37.5 GtCO2 per year, there has been a conspicuous absence of a plan to mitigate methane (CH4) emissions. Interestingly, CH4 emissions contribute to a third of the current anthropogenic GHG warming. Research by scientists at the Department of Earth Sciences, University of London, led by EG Nisbet, has shown that implementation of a wide array of mitigation and emission reduction strategies could substantially cut the global CH4 burden, at a relatively low cost compared to the parallel and necessary measures to reduce CO2, and mitigate the atmospheric methane burden back towards pathways consistent with the goals of the Paris Agreement.

Agriculture is the largest contributing sector to global emissions of non-CO2 GHGs, accounting for 48% of emissions in 2015. USEPA has projected that between 2015 and 2030, global agriculture sector emissions will increase by 10%. Further, agricultural soil emissions and livestock enteric fermentation emissions are projected to increase by 14% and 12%, respectively, between 2015 and 2030.

Paddy cultivation contributes about 15-20% of the total anthropogenic methane emissions. Methods like System of Rice Intensification (SRI), drip irrigation, soil amendments, organic matter management, different tillage, rotation, and cultivar selection, can facilitate mitigation of methane emission. Research has shown that SRI reduced methane emissions by 22% to 64%. SRI also facilitates a significant reduction in the cost of production, saving of freshwater and increasing yield and farmers’ income.

However, despite being practised for more than two decades, SRI has still not been mainstreamed in India. Skilling farmers and organising them into FPOs to collectively adopt SRI technique and disseminate the benefits of SRI needs to be incentivised and prioritised by central and state governments, and NABARD.

Experiments by scientists in Tamil Nadu have revealed that seasonal methane emission flux from paddy cultivation declined by 78% due to drip irrigation. SRI, in combination with solar-powered drip emitters along with artificial intelligence (AI)-embedded systems could be the best bet to increase rice yield and mitigate methane emission significantly.

Methane emissions from livestock are the result of enteric fermentation and manure management. It has been observed by scientists that a per cent increase in dietary fats in a forage diet comprising 30g lipid/kg dry matter intake has resulted in 3.5% reduction. The share of methane emission from enteric fermentation is estimated at around 54%. It is imperative to increase investment in R&D by leading dairy industry players by focusing on development of dietary supplements to reduce enteric fermentation, for which support from NABARD via Dairy Processing and Infrastructure Development Fund (DIDF) could be availed.

Mitigation potential from the agriculture sector is estimated to be approximately 593 MtCO2e in 2030. While India is among the top four emitters of CH4 from rice cultivation and livestock sector, it is also among the top countries which are important sources of abatement of CH4 emissions by 2030. India needs to raise its NDC ambition by including a target for mitigation of methane emission.

The postponement of COP-26 at Glasgow should give some legroom to the Koronivia Joint Work on Agriculture to address issues related to mitigation of methane emissions from agriculture and livestock sectors. Parties need to enhance their NDCs by including targets for methane mitigation. It’s time to act now before it is too late to achieve the Paris Agreement goal and the SDGs.

The author is a senior consultant, IRADe. Views are personal