PROJECT REPORT

ON
AGRICULTURE
FOREIGN
TRADE IN INDIA

Submitted by: Submitted to:

Parul Ms. Meeta Kumar
Roll No. 782 Deptt. Of Economics
B.A.(Hons.) Economics Miranda House
INTRODUCTION:
Agriculture is the dominant sector of Indian economy, which
determines the growth and sustainability. About 65% of the
population still relies on agriculture for employment and
livelihood.
Indian agriculture however, has milestones. The green revolution
transformed India form a food deficient stage to a surplus food
market. In a span of 3 decades, India became a net exporter of
food grains. Remarkable results were achieved in these fields of
dairying and oil seeds through white and yellow revolutions. The
sector could not however maintain its growth momentum in the
post green revolution years, the strategic growth in agriculture
and the accelerated growth in industry reversed the structure of
national GDP in Indian economy.
Despite these major structural transformations, the agriculture
sector continues to accommodate the major share of the
workforce. The sector is prone to output fluctuations even after
establishing better input facilities and technology like irrigation,
High yielding seeds, changes in cropping pattern etc.
India is yet to emerge as significant trade partner in the world
agriculture market. India holds around 1% of the global trade-in
agricultural commodities. With the ongoing trade negotiations
under the WTO, Indian Agriculture needs to reorient its outlook
and enhance competitiveness to sustain growth from a demand
side.
With India being a major negotiator on world agriculture trade, it
can be expected that Indian agriculture trade will expand in the
years to come. This process started with the India signing the
Agreement on Agriculture (AOA) during the Uruguay Round. Now
that the fourth Ministerial of WTO at Doha has mandated further
negotiations on agriculture trade to improve market access India
can look forward to a bright trade prospects in agriculture with
proper policy support.
 The Indian Agriculture Industry is on the brink of a
revolution that will modernize the entire food chain, as the
total food production in India is likely to double in the next
ten years.
 As per recent studies the turnover of the total food market is
approximately Rs.250000 crores (US $ 69.4 billion) out of
which value-added food products comprise Rs.80000 crores
(US $ 22.2 billion).
 The Government of India has also approved proposals for
joint ventures, foreign collaborations, industrial licenses and
100% export oriented units envisaging an investment of
Rs.19100 crores (US $ 4.80 billion) out of which foreign
investment is over Rs. 9100 crores (US $ 18.2 Billion).
 The agricultural food industry also assumes significance
owing to India's sizable agrarian economy, which accounts
for over 35% of GDP and employs around 65 per cent of the
population. Both in terms of foreign investment and number
of joint- ventures / foreign collaborations, the consumer food
segment has the top priority.
 The other attractive features of the indian agro industry that
have the capacity to lure foreigners with promising benefits
are the deep sea fishing, aqua culture, milk and milk
products, meat and poultry segments.
 This Indian agro industry revolution brings along the
opportunities of profitable investment and agriculture-
industry-india.com provides you the B2B platform with agro
related trade leads, exporters & importers directory etc. that
help you make your way to profit easy.
 To lead yourself to the destination of profit through the
Indian Agriculture Industry, know maximum about the EXIM
 policy,programs & schemes, price policy, seed policy and
statistics at the Indian agro portal and harvest benefits from
India, world's second largest producer of food and a country
with a billion people. From canned, dairy, processed, frozen
food to fisheries, meat, poultry, food grains, alcoholic
beverages & soft drinks, the Indian agro industry has dainty
areas to choose for business.

PROBLEMS:
Low Productivity:-
The low productivity in india is result of the following reasons:
According to "India: Priorities for Agriculture and Rural
Development" by World Bank, India's large agricultural
subsidies are hampering productivity-enhancing investment.
Overregulation of agriculture has increased costs, price risks
and uncertainty. Government interventions in labor, land,
and credit markets are hurting the market. Infrastructure and
services are inadequate.
Illiteracy, general socio-economic backwardness, slow
progress in implementing land reforms and inadequate or
inefficient finance and marketing services for farm produce.
The average size of land holdings is very small (less than
20,000 m²) and is subject to fragmentation, due to land
ceiling acts and in some cases, family disputes. Such small
holdings are often over-manned, resulting in disguised
unemployment and low productivity of labor.
Adoption of modern agricultural practices and use of
technology is inadequate, hampered by ignorance of such
practices, high costs and impracticality in the case of small land
holdings.World Bank says that the allocation of water is
inefficient,unsustainable and inequitable.
The irrigation infrastructure is deteriorating. Irrigation facilities
are inadequate, as revealed by the fact that only 52.6% of the
land was irrigated in 2003–04, which result in farmers still being
dependent on rainfall,specifically the Monsoon season. A good
monsoon results in a robust growth for the economy as a whole,
while a poor monsoon leads to a sluggish growth. Farm credit is
regulated by NABARD, which is the statutory apex agent for rural
development in the subcontinent.

PROSPECTs:
 Presently a small percentage of farm produced processed in
to value added products.
 India needs US $28 billion of investment to raise food
processing level by 8-10%.
 Rapid urbanization, increased literacy, changing life style,
more and more women in workforce, rising per capita
income leading to rapid growth and new opportunities in
food and beverages sector.
 Indians spend about 50% of household expenditure on food.

OPPORTUNITIES:
 Excellent export prospects, competitive pricing of agricultural
products and standards that are internationally comparable has
created trade opportunities in the agro industry.
 An average Indian spends out about 50% of his/her household
expenditure on food items. With a population of over 1 billion
and a 350 million strong urban middle class and their changing
food habbits.
 Foreign Direct Investment is not directly allowed in
agriculture but there exist ample opportunities in related
sectors.
 Biotechnology refers to the techniques that allow scientists to
modify the DNA of crops to enhance their tolerance to pests
and diseases, increase yields and improve quality and
nutritional value.

Indian agricultural trade underwent significant changes in

the post liberalization era. This book “Indian Agricultural
Trade in the 21st Century” examines these changes in
terms of production trends, trade patterns as well as
policy initiatives. The various articles in the book trace the
Indian agricultural evolution in a general perspective, and
also track specific commodities in their trade patterns,
with special focus on the post-1991 period. The articles in
the initial section on agriculture in general help identify
those commodities, which hold high export prospects, and
track their progress in international trade. Trade policy
initiatives are also examined in the light of trade
facilitation in the country. Trade in food crops is
determined by the domestic requirements, in order to
ensure domestic food self-sufficiency and security. Hence,
trade policies strike a balance between domestic pricing,
demand, and external trade prospects. Agricultural Export
Zones and trade in agriculture in the light of Sanitary and
Phyto Sanitary measures of the WTO are also examined.
The section on Horticulture and dairy products reveals the
dominant position of India in fresh fruit and dairy
production, and the huge export potential that remains to
be tapped. Impact of trade liberalization on dairy farming
is examined, besides looking at floriculture as a viable
commercial option, in view of the growing international
floricultural market. A recent phenomenon of terminal
markets in fresh fruits is also examined. Export oriented
perspective is being provided in articles on sea farming,
and Indian fisheries, along with an economic analysis of
shrimp farming in India. The final section discusses
plantation crops, oilseeds and cash crops. Plantation crops
are examined in view of their export potential with a
special focus on the rubber industry in India. Oilseeds, an
important contributor to India s foreign exchange, are
examined in the light of the WTO regime. The last article
deals with the cashew nut industry tracing its origin,
growth and trade trends in India. Some of the
recommendations of the National Commission on
Agriculture to promote international trade are also
examined.

STATUS OF THE SECTOR PRE-

LIBERALISATION
ERA:
Before independence, Indian agricultural foreign trade was
controlled by the British Government to serve colonial interests.
India, which used to export a variety of valuable goods
including fine variety of textiles, was forced to export only
foodstuffs and agricultural raw-materials and import the
manufactured goods from England. Indian farmers were made
to produce raw-materials like cotton and jute for the British
Factories. The domestic Textile industry was and India was
compelled to import manufactured Textiles from England. In
this colonial foreign trade regime, India was made to export
more resulting in favorable trade balance with England.
Ten years after the World Trade Organisation (WTO) came into
existence, and some 20 years after the holy grail of economic
liberalization for more open markets and less government
intervention in the developing world based on the idea that
economies must grow if poor people are to reap the benefits of
globalization, the tragedy is that the process of economic
liberalization may already have set poor communities back a
generation.2 No where has the negative impacts been felt
more severely than in agriculture – the first line of defense
against poverty. The role of agriculture is central to poverty
eradication and removal of hunger and is fundamental to
sustainable development and thereby ensuring global peace
and political stability. As an overview, Mark Malloch Brown,
former administrator of the UN Development Programme,
decried the faulty economic prescription being doled out for
reducing global economic inequalities. Releasing theHuman
Development Report 2003, he had stated:
“In the so-called great decade, a very significant hard core of
countries ended further behind with more poor people.”
Explaining the socio-economic debacle, he had said that fifty-
four countries, almost half of them in Africa, were poorer than
in the 1990s, and some will not meet the development goals
for 50 years. The UNDP had earlier pointed out that before
globalization became the buzz word, the richest fifth of the
world’s population in 1960 were 30 times better off than the
poorest fifth. By 1997, the figure had increased to 74. The
impact on farming communities has been more pronounced ---
the past decade saw rural livelihoods collapsing in the
developing countries, leading to more unemployment and more
migration from the rural to the urban areas. Poverty and
hunger multiplied thereby leading to further marginalization of
the rural communities. Although many economists have now
begun to concede that the relationship between economic
liberalization and growth is uncertain at best,3 the fact remains
that the world hasn’t learnt any meaningful lesson from the
unethical dichotomy that prevails at the economic and policy
planning level.
The liberalization of the Indian economy initiated during the early
1990s was launched with a view to accelerating agricultural
growth by ending discrimination against agriculture. The idea was
to turn the terms of trade in favor of agriculture through a large,
real devaluation of the currency and increase in output prices of
agriculture. The Economic Survey was in an upbeat mood, and
predicted a substantial gain to India, running into billions of
dollars from increased agricultural exports.4 such an
exponentional growth was expected to have a significant impact
on poverty reduction and thereby have a positive impact on
livelihood security of hundreds of millions of rural poor. India is
looking for investment in infrastructure, packaging and
marketing.
India- one of the largest food producers of the world .The Indian
scientific and research talent had boomed up after liberalization
because of various MNC are investing bid money in R&D.
Numerous studies have shown that the sector that has the most
beneficial effect on poverty reduction is agriculture. Considering
that agriculture is a major sector for India, accounting for 38 per
cent of the Gross Domestic Product (GDP) in 1980, declining but
still remaining at a significant 27 per cent, and accounting for 62
per cent of employment even in 1998, any significant growth in
agriculture is not only viewed as a means towards food security,
but as a strategy to achieve the broader goal of poverty
eradication. After all, for a country which alone has over 600
million farmers, sustainable agriculture is the only means to
provide viable livelihoods. Nearly 15 years after ushering in of
economic liberalization, instead of experiencing an
unprecedented boom in growth, the agricultural sector is faced
with a serious crisis. This is reflected in a significant deceleration
of growth rate of agriculture, both in terms of gross product and
in terms of output. Taking the output of the crop sector alone, as
compared with a growth rate of 3.5 per cent during the 1980s,
the growth rate of agricultural output decelerated to only 2.37 per
cent per annum during the 1990s. This was the lowest growth
achieved during any period.5 It has now slumped still further,
reaching an abysmal low of 1.5 per cent in 2004-05. The alarm
bells have been ringing for quite some time. The spectacular yield
growth recorded in the post-Green Revolution years in Punjab
and Haryana have receded into history. Among the multiplicity of
problems confronting agriculture, rapid fragmentation of land
holdings is keeping pace with increasing population. In 1976-77,
the average size of the holdings was estimated at two hectares,
and in 1980-81, it came down to 1.8hectares. Today, it stands at
a mere 1.47 hectares. The number of land holdings in 1981 were
around 89 million, today these have crossed 110 million. As
intensive farming began to bare its fangs, mining the ground
water, and destroying the soil fertility, sustainable livelihoods
began to fall apart. At the same time, by the turn of the century,
per capita food grain availability had dropped to an abysmal low
of 152 Kg, nearly 23 kgs less than early nineties.6 This compared
favorably with the stark hunger that prevailed in sub-Saharan
Africa, and was no better than the crisis-laden food situation that
existed at the time of the Bengal Famine. Green revolution had
not only gone sour, it has now turned red. The unexplained
number of huge number of farmer suicides is a testimony to the
entire equation going wrong.7 The philosophy of agricultural
planning is changing.8 Gone are the days when the Nation’s
emphasis was solely on attaining self-sufficiency in food
grain production. Gone are the days when a set of policy mix
helped keep hunger and sure starvation at bay. At the beginning
of the new millennium, at a time when food production struggles
to barely keep pace with the burgeoning population growth,
farmers are being asked to diversify, produce crops that are
suitable for export and to compete in the international market.
With promise of cheap food available off the shelf in the global
market, the focus has shifted from agriculture to industry, trade
and commerce, from the small and marginal farmers to the agri-
processing companies. Cultivation of staple food is being replaced
by cash crops, tomatoes in place of wheat, durum wheat (for
bakery purposes) replaces wheat as a staple diet in Punjab and
Haryana, flowers in place of rice, and so on. In the coastal areas,
private enterprise isntaking away the fish catch depriving the
local communities of a livelihood and the only nutrition source. In
Kerala, for instance, vast tracts of forests and paddy fields have
been converted into rubber, coffee and coconut plantations.
Commercial crops are eating into the fertile land tracts meant for
growing essential food grains. The diversion of good agricultural
land, which in any case is limited, to commercial farming and
even industries, is further exacerbating the crisis in sustainability.
WTO’s Agreement on Agriculture and other trade liberalization
measures have not only shifted the focus to export-oriented cash
crop agriculture but also opened the door to cheap imports in the
developing countries, and India is no exception. Cheap food
imports depress prices for domestic produce, and large scale cash
crop cultivation has not only shifted land away from basic food
production but has led to concentration of land and resources in
the hands of big farmers, landlords and private companies. It also
accelerates the depletion of the natural resource base.
Meanwhile, withdrawal of state subsidies and institutional support
to agriculture has pushed up production costs and supplies of
agricultural inputs. All this has led to marginalization,
displacement, loss of land and greater poverty among small
farmers. Many small farmers have become daily wage workers,
receiving low wages. Others have migrated to urban centers in
search of menial jobs, often leaving an extra burden (of farm as
well as domestic work and the responsibility of looking after the
family) on women. In other words, economic liberalization is not
only impacting food security at the household level but also
impacting the sustainability of livelihoods. Unlike the
conventional growth and ‘trickle-down’ assessment approach,
where human lives are portrayed as mere economic figures, the
sustainable livelihoods approach emphasizes assessing
community’s assets and strengths.
Agriculture in India therefore is facing multiple challenges. It
needs to become more productive to meet the growing need for
food and, it has to provide income and employment for the rural
population so as to reduce migration and combat the inequalities
and poverty.9 At the same time, agriculture has also to maintain
the balance between enhanced production, sustainable use of
natural resources and environmental degradation. In addition,
because of declining efficiency of inputs, the profit margin of
farmers is declining very sharply. Many farmers have been
squeezed between the rising costs of key inputs (as subsidies
have been phased out) and unsure market for their
produce, because of the diminishing role of the procurement
agencies.

FUTURISTIC ASSESMENT OF THE

SECTOR:
Crop land 100,000 to 1.8 MN HA . Long term rate sustainability
2005-06. Yield growth in vegetable sector at 6 % per year.
Annual rate og increase in Crop Area at around 0.5%.Agricultural
commodity futures are market based instruments for managing
risks and orderly establishment of efficient agricultural markets.
These are used to hedge commodity price risks. The hedging
and price discovery function of the future markets promote more
efficient production, storage, marketing and agro-processing
operations and help in improving overall agricultural
marketing performance. Commodity trading is just one step in
solving the complex Indian agriculture problems. Although
formalized future trading in agricultural commodities has been in
place since 1918-19, the future trading in commodity through
commodity exchanges came to its own very recently. But the
trade was mostly in the form of forward contracts. Although India
has a long history of trade in commodity derivatives, this sector
remained underdeveloped due to government intervention in
many commodity markets to control prices. Free trade in many
agricultural commodities is restricted under the Essential
Commodities Act (ECA)-1955 and Agriculture Produce
Marketing Committees Act (APMC) of various states. The
forward and futures Contracts till April 2003, was limited to only a
few commodities items under the Forward Contracts
Regulation Act (FCRA)-1952. However, in 2003 Government of
India removed all restrictions on commodities which could be
traded on commodity exchanges. At present 25 commodity
exchanges are in operation in India carrying out futures trading in
as many as 81 commodity items. Most of these exchanges are
regional and commodity specific. National Multi Commodity
Exchange (NMCE) status has been accorded to four commodity
exchanges, namely, National Mutli Commodity Exchange
(NMCE) Ahmedabad, National Board of Trade (NBOT), Indore,
National Commodity Derivative Exchange (NCDEX) Mumbai
and Multi Commodity Exchange (MCX) Mumbai during 2003.
These exchanges have excellent financial backing, demutualised
ownership structure and more transparent electronic trading
system. The Forward Markets Commission (FMC) established
underFCRA-1952 is the agency which regulates commodity
derivatives trading in India in the same way as SEBI does for
securities markets in some areas farmers are gradually getting
aware of futures
prices which are disseminated through exchanges. In the capital
market, spot market developed before the derivatives market
which made the things easier. In the commodity space, the
derivatives have come before the so called integrated spot
market. Future market is a boon to the farmers. Under the
prevailing scenario, Commission for Agricultural Costs and Prices
(CACP) recommends Minimum Support Prices(MSP) with no
guarantee that farmers will get that price. Generally, MSP
acts as the maximum price that is paid to farmers. Open-ended
purchase could continue to be made at MSP as floor price,
exchanges should be able to offer market based options at strike
prices higher than the MSP. Be able to offer market based options
at strike prices higher than MSP. Budget fails to meet the
expectations of participants in the commodity future markets as
the needed reforms facilitating the growth of commodity markets
have been avoided. Introduction of Commodity Transaction Tax
(CTT) on line with Securities Transaction Tax (STT) is a negative
move for the commodity market when market is still evolving
seeking larger participants and volumes. Moreover, the long and
short term capital gains benefits extended to securities market
has not been extended to commodities trading. On the other
hand, the decision is significant in the wake of commodities
markets regulator to institutionalize the development of market
mechanism, support institutions capacity building and
development of strong forward and backward linkages between
market, producers, traders and consumers and the Forward
Markets Commission receiving more autonomy to deal efficiently
with the challenges facing the commodities futures markets with
the approval of Forward Contracts (Regulation) Act, and Foreign
Direct Investment(FCI )/ Foreign Institutional Investors’(FII )
Investments in commodities sector it showed an increased
interest of the government in expanding the commodity futures
markets in line with the equity markets. Securities markets are
eight times larger than the commodities market and hence the
levy is premature. The functioning of securities markets is
different from that of commodities markets. Commodities markets
are global asset class and trade flowed to the most efficient
markets that bore the least cost of trading. Commodity markets
are still in the nascent stage (4years old) and a fraction of the
size (1/5th) of the securities markets. It would increase the cost
of trading by at least four times. Future trading in wheat, rice, tur
and urad had already been suspended by the FMC. Efficient
functioning of futures markets pre-supposes the existence of
efficient spot markets. Currently, physical spot markets have large
numbers of infirmities. It will be difficult for the futures markets
to function till these are removed. Commodity markets in India
need structural changes for increasing depth and curbing of
speculative activity. Banks, FIIs and other institutions should be
permitted to trade in the commodity markets. National
Commodity spot markets need significant legislative and
administrative support for taking off. Banks, FIIs and other
institutions should be permitted to trade in commodity markets.
Commodity options need to be developed. The setting up of
national electronic exchanges by the national commodity
exchanges is an attempt to create a national integrated market.
The vibrant agriculture markets including derivatives markets are
the frontline institutions to provide early sign of future prospect of
the sector. Vibrancy in these markets gives signal about
commodities which deserves flow of investment. All the
regulators operating within the commodity markets scope work in
cohesion.

Declaration
 I hereby declare that this term project entitled
“Agriculture Foreign Trade in India” is based on
my understanding of the subject and has not
been copied from published source or website.
My indebtedness to other works on the subject
has been duly acknowledged at the relevant
places.

Signature of the student

Signature of the mentor

Date: 31-3-2011
ACKNOWLEDGEME
NT

Doing a project requires the assistance of many

people who can guide us efficiently and
understanding the concepts of the project and
providing us with feedback.
I have proud privilege of preparing this project
report under the guidance of Ms. Meeta Kumar,
Faculty of Miranda House, without whom this
project can’t be fulfilled.
Contents:

 Introduction
 Problems
 Prospects
 Opportunities
 Status of the sector pre-liberalization
Era
 Futuristic assessment of the sector