Promoting Organic Food Exports: Opportunities and Challenges

 The 20^th edition of the Organic World Congress (OWC), being hosted at Rennes, France, is  scheduled to be held virtually during 6-10 September 2021. The OWC is expected to bring together more than 2,500 organic stakeholders, farmers, researchers and policymakers to address questions  around resilience, societal transformation, health, and food sovereignty.  Held once in three years, the key priorities of OWC, which is the world’s largest organic gathering, are: (i) innovations to stimulate farmer conversion to organic – increase nutritional revenues from fields while maintaining ecosystem vigour; (ii) organic systems are tied to the living soil and should be enhanced to preserve and develop biodiversity as well as plant and animal integrity; (iii) the organic agriculture movement inspires healthy food systems and a culture of sustainability; (iv) organic agriculture is forward-looking and achieves innovation through the melding of tradition and science; (v) organic agriculture serves as an inspiration for the transformational changes needed within the agricultural sector; (vi) it is time to scale up and harness the benefits reaped from sustainable farming; and (vii) offer alternatives to global challenges and maximize positive impacts on people and the planet.

According to the Research Institute of Organic Agriculture FiBL, organic land is estimated to constitute 1.5% of global agricultural land. Australia had the largest area (35.69 million ha) in the world under organic agriculture in 2019, followed by  Argentina (3.67 million ha), Spain (2.35 million ha), the US (2.33 million ha), India (2.30 million ha), France (2.24 million ha), China (2.22 million ha), Uruguay (2.14 million ha), Italy (1.99 million ha), and Germany (1.61 million ha). These ten countries constitute 75% of the world’s organic agricultural land. India had the highest increase in land under organic cultivation in 2019 by 0.36 million ha, compared to 0.29 million ha in the US and 0.21 million ha in France. The area under organic farming in India grew at a CAGR  of 15.6% during the 10-year period up to 2019.

Traditional farming in India was by default, organic. However, Green Revolution was achieved due to the use of chemical inputs like fertilizers and pesticides, which led to significant  improvement in crop yields and attainment of food security in the country. But, overuse and disproportionate use of chemical fertilizers and pesticides had adverse effects on soil health, groundwater  and consumer health. There has, however,  been a growing demand for organic food products both domestically and globally, and there is growing awareness about the need to protect soil and consumer health. While consumption of health and wellness organic products in India is estimated to grow at a CAGR of 11.1% (2015-20), organic packaged food and organic beverages grew at CAGRs of 12.1% and 15%, respectively.

India is a net exporter of organic products. One of the objectives of India’s Agriculture Export Policy, 2018 (AEP),  is to promote novel, indigenous, organic, ethnic, traditional and non-traditional agri products exports.  Therefore, it is indeed heartening to note that India’s exports of organic farm products touched a record $1,040 million, having  surged 51% during FY 21 over that of the previous year, while overcoming Covid-induced supply chain bottlenecks.

Madhya Pradesh is the largest producer of organic food in India, at 0.95 million metric tonnes (MMT), in 2019-20, followed by Maharashtra at 0.91 MMT. These two states together accounted for 69.2% of total organic production in India at 2.67 MMT.

Oilseeds production at 1.07 MMT accounted for 40% of total organic production. There is a need to focus on production of processed food, cereals, pulses, fruits, vegetables,  medicinal plants, tea and coffee, in view of a steady increase in consumption demand in India and abroad. It is, therefore,  imperative to develop a comprehensive policy on organic food processing to promote exports.

Sikkim was the first fully organic state. But the state has witnessed some decline in yields following conversion to organic farming. However, there is a need to promote and develop organic agriculture in Sikkim, Eastern and North Eastern Regions, Uttarakhand, Jammu & Kashmir  and Ladakh, which have good potential for organic production and exports.  According to the AEP ‘Amul’ style cooperatives need to be developed in the Eastern and North Eastern states, to promote exports of organic products.

The share of organic exports to organic production in India is estimated at 23.3%. With a steady increase in exports and increasing potential for exports, it is possible to raise the share of organic exports  to 30-35% within the next five years The share of processed food in organic exports in terms of value in USD, is the highest at 45%, followed by oilseeds (13.3%), cereals & millets (8.2%) and tea (7.2%). M.P. has the highest share of organic exports at 35.6%, followed by Gujarat (10.9%), and Maharashtra (10.1%). The US has the highest share of India’s organic exports at 51.3%, followed by the EU (36.4%).

Global trade in organic products is dependent on the recognition of standards and processes by the importing countries. To counter this barrier, the EU, the US and other countries have entered into equivalence arrangements whereby a country or region may unilaterally or bilaterally recognise the standards, certification process, label, etc., of its trading partner. Seventy-two countries, including India, have fully implemented organic regulations.

Agricultural & Processed Food Products Export Development Authority (APEDA) had developed regulations for the export of organic produce in 2002, viz. the National Programme for Organic Production (NPOP). The United States Department of Agriculture (USDA) has recognized NPOP conformity assessment procedures of accreditation as equivalent to that of NOP of the US. APEDA is also in the process of bilateral equivalence arrangements with South Korea, Taiwan, Canada, Japan, and other countries.

The Ministry of Agriculture and Farmers’ Welfare, GoI,  has established the Participatory Guarantee System for India (PGS-India), which is a self-certification process to encourage small and mid-sized farmers to take up organic farming. The total of PGS-certified producers in India is 1.08 million, which is the highest in the world. India is home to 30% of total certified organic producers in the world, and there are export opportunities for value added fruits and vegetables, dairy products, processed livestock, and ready-to-eat food, as they are in demand in the US, the EU, and the UK, which are India’s major export destinations.

There is a need to develop Organic Clusters (OC) and Organic Product Export Zones (OPEZ), providing common infrastructure for processing, production, certification and export of organic food products. Investments in logistics and connectivity of OC and OPEZ to ports and airports too need to be prioritised. Farmer Producer Organisations  (FPOs) could be linked to OC or OPEZ, which could facilitate significant increase in income of small and marginal farm holders. Further, there is a need to promote  “Jaivik Bharat” certification of organic food,   through diplomatic efforts. Product innovations through R&D could be another important strategy to promote exports of organic products.

Participation by India’s policy makers, researchers, organic exporters and farmers at the OWC could certainly be a good opportunity to learn from global best practices for the development and export of organic food products. 

Budget 2021-22: Blueprint for Sustainable Development of Agriculture

The Union Budget 2021-22 has truly been a “Budget like never before”, with its thrust on reforms and investment in infrastructure across sectors. The roadmap for a $5 trillion economy has indeed been set by the Budget.

With about 42 percent of India’s workforce engaged in agriculture and allied activities, the importance of the sector in increasing  income, employment and achieving inclusive growth, is well-documented. Therefore,  it is imperative to  accelerate  investment in the sector to enable sustainable development. Capital formation in agriculture is of critical importance for the sustainability of agricultural growth.  Hence, it is a matter of concern that the percentage share of Gross Capital Formation (GCF) in agriculture and allied sector Gross Value Added (GVA) at 16.4 percent (2018-19), is too meagre to address the issue of sustainability of Indian agriculture. Therefore, capital formation through rural infrastructure development and term loans to the agriculture sector assumes significant importance.

Investment in rural infrastructure is a pre-condition to enable the acceleration of agricultural growth, creation of new economic opportunities, and generation of employment. It is, therefore, worth appreciating that the Union Budget 2021-22 has enhanced the allocation under Rural Infrastructure Development Fund (RIDF), administered by NABARD, by a whopping 33.3 percent to `40,000 crore over the allocation in the previous year’s Budget. During its 26-year  journey, RIDF has evolved into a dependable and timely source of funding for rural infrastructure projects for state governments. Therefore, the present hike in the allocation under RIDF promises to accelerate investment in rural infrastructure, resulting in the much-needed capital formation in agriculture, leading to sustainable agricultural growth, while raising crop productivity, generating employment and doubling farmers’ income. As documented by NABARD,  irrigation projects financed under RIDF have resulted in more than 30 per cent increase in irrigated area, leading to the creation of 341 lakh ha of irrigation potential, `57,427 crore additional value of production, more than 50 per cent increase in cropping intensity, and generation of 1,401 crore non-recurring employment  (as on 31 March 2020).

Another important move in the Budget has been the availability of Agriculture Infrastructure Fund (AIF) to APMCs for augmenting their infrastructure facilities. Also, 1,000 more APMC  mandis will be integrated with e-NAM. Presently, 1.68 crore farmers are registered and `1.14 lakh crore of trade value has been carried out through the existing 1,000 e-NAMs, which have displayed transparency and competitiveness into the agricultural market. These announcements should assure farmers that APMCs are here to stay, and would indeed grow stronger, to face competition from private mandis, leading to transparent price discovery, benefitting the farmers, especially the small and marginal holders. The AIF, with a corpus of `1 lakh crore was created by GoI under  Atma Nirbhar Bharat Abhiyan, for the development of farm-gates and aggregation points, and post-harvest management infrastructure. The scheme involves credit support by banks and financial institutions to primary agricultural credit societies (PACS), marketing cooperative societies, farmer producer organisations (FPOs),  self -help groups (SHGs), farmers, joint liability groups (JLG), multipurpose cooperative societies, agri-entrepreneurs, startups and central/state agency or local body sponsored public-private partnership projects. Interest subvention and credit guarantee for loans up to `2 crore is also available to eligible borrowers. The allocation under the scheme in the Budget has been increased significantly from `208 crore (RE 2020-21) to `900 crore, which augurs well for agriculture marketing reforms.

India is a water-stressed country, and 78 percent share of water is consumed by the agriculture sector. While water-use efficiency under conventional irrigation ranges between 30 per cent and 50 per cent, the same is around 80-95 percent in case of micro irrigation. The total potential of micro irrigation in India is estimated at around 69.5 million hectares (Mha). But, the coverage of micro irrigation is only 10.25 Mha  (2018). It is therefore, commendable that the Budget has doubled the corpus of Micro Irrigation Fund (MIF) to `10,000 crore. The MIF, created under NABARD, facilitates state governments in mobilizing additional resources for expanding the coverage of cultivated land under micro irrigation and incentivizing its adoption beyond the provisions of the Pradhan Mantri Krishi Sinchai Yojana – Per Drop More Crop (PMKSY-PDMC). As on 31 October 2020, the cumulative loans sanctioned and released under MIF stood at `3,806 crore and `1,095 crore, respectively, to the state governments of Andhra Pradesh, Gujarat, Haryana, Tamil Nadu and West Bengal, for facilitating them to expand micro irrigation to an area of 12.6 lakh ha. involving 10.06 lakh farmers, of which about 78 percent  belong to small and marginal holder category. The enhancement in the budgetary allocation would extend the benefits under the scheme to other states and larger number of farmers.

Enlargement in the scope of the  ‘Operation Greens Scheme’, from tomatoes, onions, and potatoes (TOP) to include 22 perishable products, is a landmark announcement in the Budget. The scheme  promoted by the Ministry of Food Processing Industries, aims to boost value addition in agriculture and allied products and their exports, and provide support to promote FPOs, agri-logistics, processing facilities and professional management. The integrated development of horticulture value chains would provide support to farmers when prices of agri-produce is low. Therefore, the expansion of the scheme promises to provide income security to a sizable number of farmers.

India is the second largest fish producing country in the world, and fisheries is the fastest-growing (12 percent real GVA growth in 2018-19) sub-sector of agriculture and allied sector in the country. Therefore, the       announcement in the Budget on the  development of modern fishing harbours, fish landing centres and a multipurpose seaweed park,  promises to develop the sector in a well-calibrated and sustainable  manner, to accelerate domestic and foreign trade, and in the process significantly improve the income and livelihoods of fish farmers

Adequate and timely availability of bank credit, at affordable rates of interest is essential to improve agricultural productivity and sustainability. Therefore,  the enhancement in the target for agricultural credit to `16.5 lakh crore in the Budget from `15 lakh crore in FY21, is welcome. It is also important to note that the  focus will be on ensuring increased credit flows to high-growth and high-value activities, viz. animal husbandry, dairy, and fisheries. A thrust on credit by banks to these sub-sectors along with horticulture, farm mechanisation, warehouses and cold chains, to farmers, FPOs and agri-entrepreneurs,  is imperative to increase the share of agriculture term loans in total agriculture credit disbursed, from the current 40 percent to 60 percent, to accelerate  capital formation in agriculture.

The Budget provides the much-needed big push  for investment and infrastructure development in the agriculture sector, to enhance productivity, value of output, income and employment, towards achieving a sustainable 5 percent annual growth of agri-GVA, which is vital to support the achievement of a $5 trillion economy within a reasonable time-frame.

Stimulating Agricultural Exports for Doubling Farmers’ Income

 

Achievement of a $5 trillion economy by India could be pushed by a couple of years from the original deadline of 2024-25, due to a pandemic-induced recession during 2020-21.  Only a V-shaped recovery during 2021-22, and a sustainable growth of 9 percent per annum over the next five years can turbocharge the economy to touch the $5 trillion mark.  The agriculture sector which contributes 14.6 percent to the economy, needs to support this objective by focusing on private investment  and exports, while targeting an annual agri-GVA growth of 5 percent. A focus on reforms in agri-marketing and agri-exports, along with the promotion of hi-tech, digital and precision agriculture, would be an appropriate recipe for transforming the agriculture sector, while doubling farmers’ income, within a reasonable time-frame.

India ranks among the top ten exporters of agricultural products in the world.  According to WTO’s World Trade Statistical Review 2020, the country’s share in global agricultural exports increased from 1.1 percent in the year 2000 to 2.2 percent in 2017, valued at $39 billion, but fell to 2.1 percent in 2019, valued at $37 billion. While the US witnessed a decline in its share of global agricultural exports from 13 percent in 2000 to 9.3 percent ($165 billion) in 2019, Brazil’s share increased from 2.8 percent to 5.0 percent ($89 billion), and that of China increased from 3 percent to 4.6 percent ($82 billion). In order to catch-up with Brazil and China, India needs to bring about structural reforms in the agriculture sector, including a stable trade policy regime.

India’s agricultural exports experienced huge fluctuations during the ten-year period 2010-11 to 2019-20. The ten-year CAGR was 1.7 percent. During the first five-year period 2010-11 to 2014-15, agri-exports increased significantly from $24.4 billion (2010-11) to an all-time high of $43.1 billion (2013-14), before declining to $39.4 billion (2014-15) at a CAGR of 11.5 percent. The second five-year period (2015-16 to 2019-20) witnessed a slump in agri-exports to $33 billion (2015-16), before a steady increase to $38.8 billion (2018-19), followed by a slide to $37 billion (2019-20) (see Figure below). The CAGR during this period slowed down considerably to 3.7 percent, from the previous period.

According to APEDA, during the period April-October 2020, India’s exports of top three agri-commodities, viz. Basmati rice, non-Basmati rice and buffalo meat, in terms of value (USD) grew by 9 percent, 104.4 percent and 10.5 percent, respectively, compared to the corresponding period of the previous year. The sharp rise in exports of non-Basmati rice can be attributed to lower prices compared to that of major rice exporters, Thailand and Vietnam and also because these countries stopped exports due to lockdown. Taking advantage of this, Indian non-Basmati rice exporters have been able to meet the increasing import demands from China, Bangladesh and African countries.

However, what is worrisome is the absence of a stable trade policy regime in India. In order to control prices in the domestic market, the government has at different times resorted to banning of exports of major agri-commodities, viz. rice, wheat, sugar and onion. Imposition of minimum export price (MEP) is another tool often used to tame inflation.  These measures create uncertainty among importing countries, and deprive farmers of higher returns from their produce.  

The Agriculture Export Policy (AEP), 2018 of GoI, aims at achieving an export target of $60 billion by 2022 and $100 billion within a few years, thereafter. This is indeed a humongous task, even under normal circumstances, and more so in the aftermath of the Covid-19 pandemic.  Therefore, there needs to be a realistic resetting of the timeline to achieve the target. Achieving the target would involve a paradigm shift from a “business-as-usual” approach to a well-calibrated, comprehensive, strategic  and result-oriented agri-export policy and action plan. This would lead to technology-driven agricultural productivity gains across sub-sectors, resulting in  higher output and marketable surplus for domestic and foreign markets.

The following strategies are suggested by this author for India to achieve the target of $100 billion of agri-exports within a reasonable time-frame, while also resulting in doubling farmers’ income:

·       Majority of India’s agri-exports are low value, raw or semi-processed products. Therefore,  agri-export strategy should include integration of value-added agri-produce with global value chains (GVC), by adopting the best agricultural practices involving productivity gains and cost competitiveness. It’s also imperative for India to reconsider joining RCEP at an opportune time, and also to enter into FTAs with the EU, the US and the UK.

·       In order to boost exports of dairy products and make the dairy sector globally competitive, GoI needs to consider development of Dairy Export Zones (DEZs) in collaboration with state governments (see “A White Revolution for Exports” by this author in FE December 07, 2019). This could immensely benefit small dairy farmers, organised as farmer producer organisations (FPOs)/ farmer producer companies (FPCs)/ cooperatives, for supplying milk, and also for contract production of dairy products on behalf of  major dairy producing companies, leading to cost efficiency and higher export revenue to the dairy companies as well as significantly higher income to farmers.

·       Linking of FPOs through contract farming arrangements with export-oriented food processing units of food parks created under Pradhan Mantri Kisan Sampada Yojana, for producing processed cereals, fruits, vegetables, fish and marine products, would boost exports of processed food and raise  income of small and marginal landholders and small fish farmers.  

·       With global trade in organic products estimated to be around $90 billion, there is a huge opportunity for exports of value-added organic products from India, which exported $689 million worth of organic food in 2019-20. Madhya Pradesh, Rajasthan, Maharashtra, the North Eastern Region (NER), Uttarakhand and Goa are major producers of  organic products in the country. It’s desirable to create Organic Product Export Zones (OPEZs) in  these states and NER, with common infrastructure for processing, standardisation, storage, logistics, and connectivity to ports and airports. Branding of products and registration as GI, could further facilitate exports of value-added organic products. FPOs of organic farmers could be formed and linked to the OPEZs, to ensure higher income for farmers.

·       Economic diplomacy and promotion of Brand India can play an effective role in increasing agri-exports.

·       The AEP has recommended the establishment of Agriculture Export Zones (AEZs), to facilitate value addition of agri-commodities for increasing exports in a WTO compatible manner. In order to ensure higher income for farmers, FPOs need to be linked to AEZs to supply SPS-compliant agri-products. 

·       Higher investments in Research and Development (R&D) and technology, viz. Internet of Things (IoT), artificial intelligence (AI) and blockchain, for improving agricultural productivity, resource-use efficiency and export competitiveness.

·       Linking farmers/ FPOs to the export market and skilling of surplus farmers for their absorption in the agri-export value chains, could be an important strategy to sustainably raise farmers’ income.

Concerted efforts by GoI, state governments, Indian embassies, APEDA, EXIM Bank, NABARD, and all other stakeholders in the agri-export value chains, are needed to address a whole range of issues pertaining to promotion of agri-exports,  which could potentially propel India into the top bracket of agricultural exporters, and in the process facilitate doubling of farmers’ income within a reasonable time-frame.

CAGR:  2010-11 to 2019-20 = 1.7%; 2010-11 to 2014-15 = 11.5%; 2015-16 to 2019-20 = 3.7%

Source: Author’s calculations based on data accessed from Economic Survey, Government of India (various issues) and World Trade Statistical Review 2020, WTO