India: Implications for the Canadian AgriFood Sector

1
India Implications for the Canadian Agri-Food
Sector

• Gaëtan Lussier, Chair of CAPI Board Presentation
  to International Economic Forum of the Americas
• Agri-Business Forum
• Conference de Montreal, June 20, 2007

2
India - Position in World Agriculture (I)
India and the Canadian Agri-Food Sector

• India has a population of over 1 billion
• 16.7 of global population (second to China)
• Indias agricultural (rural) population is 739
  million
• 72 of Indian population
• 23 of the worlds rural population (second to
  China)
• Indias active agricultural population is 267
  million
• 26 of Indian population
• 20 of the worlds active agricultural population
  (second to China)
• India has 162 million hectares of arable land
• 12 of global arable land base (second to US)
• India has 70 million hectares of irrigated land
• 25 of the worlds irrigated area (second to
  China)

Indian agriculture is a significant part of
global agriculture, Within India, agriculture is
a significant part of the economy
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India - Position in World Agriculture (II)
India and the Canadian Agri-Food Sector

• India has 1.5 million tractors
• 6 of the worlds tractors
• 1 tractor for every 178 active agricultural
  workers
• India has 0.6 ha of arable land per active
  agricultural population
• This compares to over 250 ha/farm in Canada
• India has 115.6 million operational rural land
  holdings (farms)
• 1.41 acres average size
• 62 are under 1 ha, and 1 over 10 ha.

Agricultural production in India is labour
intensive compared to the west. Agricultural
policy in India takes into account the fact that
mass mechanization is not practical with small
scale agriculture, with a high labour-to-capital
ratio, and the fact that the economy can not
afford a large population out-migration from
rural areas to major cities (with substitution of
capital for labour)
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India - Position in World Agriculture (III)
India and the Canadian Agri-Food Sector
Even with one third of arable land irrigated,
crop yields are generally lower than in the west,
and generally lower than in China (2003
yields) 54 of area in rice is irrigated and 88
of wheat area is irrigated (these two crops
account for two-thirds of irrigated
area). Indias cost of production allows India to
be a low cost supplier of exportable products,
however this is not a sizeable share of
production.
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India - Trends in Agricultural Production
India and the Canadian Agri-Food Sector
Production has been increasing through higher
yields, which can be attributed in part to larger
use of (subsidized) fertilizer over the last 20
to 30 years. Food grain production provides just
under 0.5 kg per person per day in India Crop
production is 70 of agricultural output, and
fruit and vegetable production accounts for 32
of crop production
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India - A World Leader in Production (2005)
India and the Canadian Agri-Food Sector
India produces 43 of global butter, 22 of
global rice, 10 of horticultural products, and
17 of the worlds cotton. Indias wheat, coarse
grain and oilseed production of 115 million
tonnes is almost double Canadas production of 60
million tonnes
7

India is Not a Significant Exporter
Worlds Largest Exporters (2003)
3.2
2.0
Annual Growth Rates 1990-2003
US Billion
6.2
5.3
1.9
3.3
5.3
3.0
4.0
9.5
3.1
5.4
6.0
1.6
6.3
Source FAO Elaboration ICONE
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India - An Exporter in Some Commodities
India and the Canadian Agri-Food Sector
Rice is India's largest export crop, with export
value of over US1 billion, followed by cashews
US 400 million India is the second largest
exporter of rapeseed meal (after Canada) ,
accounts for 14 of global rice exports, and 11
of beef and veal exports In some years India was
a wheat exporter, and other years a wheat
importer same for cotton Oilseeds are imported
for edible oils with some of the meal exported
9
India - Also an Importer of Commodities
India and the Canadian Agri-Food Sector
India is an importer of edible oils. Arguably
there is opportunity for Canada in a number of
product areas
10
India - In the Context of Global Competitiveness
India and the Canadian Agri-Food Sector
The World Economic Forum, through their Global
Competitiveness Index (GCI) ranks India at 43,
above its BRIC colleagues. India is well well
ahead of the other BRICs on factors affecting
the efficiency driven, and the innovation driven
economy, and on business competitiveness (BCI) at
the firm level. Insufficient health services and
education as well as a poorly developed
infrastructure are limiting a more equitable
distribution of the benefits of Indias high
growth rates. Indias public sector deficit is
one of the highest in the world. A focus for
India is improvement on overall basic
requirements for overall competitiveness. As
India globalizes, will improved competitiveness
potential apply to the industrial sector and the
services sector only, and possible not to the
agricultural sector?
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India - In the Context of Globalization
India and the Canadian Agri-Food Sector
Using A. T. Kearneys Globalization Index, the
BRIC countries have a way to go to become
globalized economies. India is ranked 61 out of
the top 62 countries (and ahead of Iran) that
contribute to 96 of the worlds GDP. India is
rated low on trade due to restrictive trade
practices and has restrictions on FDI (foreign
direct investment) this also applies to
agriculture Doing Business in S.E Asia rated
India at 147th in the world in terms of ease
doing business. Personal contact is low, and as
well as technological connectivity and political
engagement. There are a number of impediments
that India must overcome to be a fully globalized
economy
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India and Globalization
India and the Canadian Agri-Food Sector

• India is lower on the globalization scale
  compared to the other BRICs, with Brazil ranked
  much higher on FDI, China much higher on both
  trade and FDI, and Russia somewhat better,
• India like the other BRICs is essentially a
  low-cost supplier on the world stage of
  commodities, inexpensive consumer products, or IT
  services,
• Indias more favourable environment of innovation
  and competitiveness at the firm level are
  strengths which will likely be leveraged to
  Indias advantage,
• Like the other BRICs, when per capita consumer
  spending exceeds (US)3,000 per year,
  globalization offers opportunities for countries
  such as Canada,
• Per capita disposable income is US500 (PPP of
  US2,300)
• Accessing these opportunities requires navigating
  around Indias restrictive trade practices and
  limits on FDI
• The question is how to gain access
• While India is a low cost supplier, India is not
  expected to be a large supply source of
  exportable products given Indias internal
  reality (social, rural) and constraints

13
Indias Agricultural Policies - Context
India and the Canadian Agri-Food Sector

• An important context for viewing Indias
  agricultural policies
• 70 of the Indian population lives in rural
  areas, and
• 60 of the workforce is in the agricultural
  sector.
• Agriculture contributes to 23 of GDP, reflecting
  the low level of capital employed relative to
  labour, with resulting low labour productivity,
• Land ownership has been seen as a way to overcome
  poverty
• States have laws limiting the size of individual
  land holdings
• Some states have relaxed these ceilings (on land
  ownership) to allow for economies to scale in
  horticulture production and processing
• Small land holdings limits productivity
  improvements
• Many farms are subsistence with little marketable
  production
• Many landowners also have off-farm employment to
  supplement family income
• Food security is a focus of agricultural policy
• Self-sufficient policies at national and
  sub-national levels
• Agriculture is key to maintaining rural employment

This situation does not support an export focused
agricultural sector
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Indias Agricultural Policies Price Supports
India and the Canadian Agri-Food Sector

• Minimum support prices (MSP) for basic
  commodities are part of an incomes policy for
  farmers
• paddy rice, wheat, coarse grains, corn, barley,
  pulses, sugarcane, cotton, groundnuts, jute,
  rapeseed, sunflower, soybeans, safflower, etc.
• MSP have been lower than external prices,
  resulting in calculations of Indias farmers
  being taxed.
• Market intervention scheme (MIS) are ad hoc
  government purchases to support prices at
  intervention prices
• applies to many horticultural crops (oranges,
  apples, palm oil, potatoes, onions, etc)
• Government licensed food price shops sell basic
  foods (wheat , rice, sugar, edible oils) to
  consumers at pre-established prices (based on
  income),
• families below the poverty line pay less than the
  MSP received by farmers

15
Indias Agricultural Policies Subsidies
India and the Canadian Agri-Food Sector

• Input subsidies on fertilizer, irrigation and
  power equal to 2.1 of Indias GDP (8.8 of
  agricultural GDP)
• Government encouraged irrigation through water
  and electricity subsidies
• INR 270 billion (US 5.9 billion) in 2004/05 in
  subsidies before measuring the impact of trade
  policies,
• Subsidies crowd out expenditures on
  infrastructure improvement

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India - Tariffs Provide for Income Support
India and the Canadian Agri-Food Sector
Tariff rates are decreasing, but less so for
agricultural products (Gulati) Agricultural
tariffs on average are well above tariffs on
manufactured goods, This can limit Canadian
access to Indias growing markets
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Indias Agricultural Policies - External
India and the Canadian Agri-Food Sector

• To maintain its domestic agricultural policy,
  India uses border protection measures
• Bound rates of 100 for commodities, 150 for
  value added foods (eggs, flour), and 300 for
  edible oils,
• Actual rates can be less than bound rates ( 35)
  due to countercyclical nature of tariffs, (35 on
  whole poultry)
• India uses TRQ on some imports (used to have
  strict import controls),
• canola oil and sunflower oil, with in-quota rates
  of 50
• Overall income support is countercyclical
  higher import tariff levels when world prices are
  low, and lower tariffs when world prices are
  higher.
• Recently created agricultural export zones (AEZs)
  agricultural clusters to source local raw
  product and process and package for export
  (mostly on fruit and vegetable products)

Studies looking at the 1990s concluded that
Indian agricultural was taxed, versus subsidized,
due to difference between internal prices (MSP)
and world prices
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India - Support to farmers has been negative
India and the Canadian Agri-Food Sector
Farmers have been subsidizing consumers through
price policies Due to the countercyclical nature
of income support policies, computed support to
Indian agriculture has been negative when world
prices were above average levels Over the 1985 to
2002 period, the average support level was under
1 (Mullen et al)
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Directions of Agricultural Policy in India
India and the Canadian Agri-Food Sector

• Over time as India sees the costs of its
  agricultural policies, India may modify policy to
  
• Achieve equity objectives through incomes
  policies, which are separate from
• Achieving efficiency objectives through price and
  trade policies,
• Doing so will open up market access
• import opportunity, and
• supply of low cost exports
• The agricultural export zones (AEZs)
  agricultural clusters to source local raw
  product, allow for some economies to size, and
  process and package for export (mostly on fruit
  and vegetable products) are an example of moving
  on the efficiency objectives

Such a policy change, while creating
opportunities for Canadian exporters, will also
allow India to exploit some of its vast
production potential from its 162 million
hectares of arable land and its 70 million
hectares of irrigated lands With such a policy
shift, India can join Brazil and China as volume
based reliable low cost suppliers of certain
agricultural products in which they have a
competitive advantage.
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Competitive Issues for Canada
India and the Canadian Agri-Food Sector

• Horticulture ( as an example)
• India is the second largest world producer of
  horticultural crops
• 32 of crop area is in horticultural crops
• Horticultural crops are labour intensive in North
  America, implying India has an advantage in fruit
  and vegetable production
• India is supporting the development of fruit and
  vegetable processing capacity
• With reforms, India could become another supply
  source and import challenge for the Canadian
  industry
• Innovation
• India is more innovative than its BRIC
  counterparts
• Based on Indias ranking on firm level
  competitiveness, India may enter markets by
  leveraging innovation in specific parts of the
  agri-food sector

Competitive challenges can arise for the Canadian
agri-food sector, understanding these challenges
and having a proactive strategy is key
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Market Opportunity - 81 million households
India and the Canadian Agri-Food Sector

• India has 208 million households,
• 6 millionaffluent households have incomes above
  INR215,000 (US5,000),
• 75 million well off household incomes between
  INR45,000 (US1,000) and INR215,000 (US5,000),
• Remaining 127 million households have incomes if
  under INR45,000 (US1,000),with 78 million
  between INR22,000 (US500) and INR45,000
  (US1,000),
• Food is 45 of household spending
• Indias working population will grow for the next
  two decades
• Food beverages and tobacco spending through
  formal retailing was US190 billion in 2004
• EIU (Economist Intelligence Unit) forecasts food
  and beverage retailing will increase by 9.2 over
  the next 5 years, versus overall GDP of 7
• With expected internal reforms, per capital GDP
  will double by 2020

The market opportunity in India is significant,
much larger than within Canada, and the market
will continue to grow through rising incomes and
through more households with disposable incomes
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Opportunities for Canada
India and the Canadian Agri-Food Sector

• Processed foods
• India consumes less processed foods and prepared
  foods than most other countries
• Around 2 of food purchased is processed, with
  food processing the fifth largest industry at
  4.3 of GDP
• Packaged food products not requiring a cold
  storage supply chain
• The cold supply chain is one of Indias
  weaknesses
• Poultry consumption is increasing
• doubled over last 10 years to 1.3 kg/person
• beef is a down market item
• Edible oils
• Pulse crops
• Supplying the growing food service sector

Opportunities exist for the Canadian agri-food
sector, the number one challenge is to gain
market access
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Implications for Canada Accessing the
Opportunity
India and the Canadian Agri-Food Sector

• Canada India bilateral trade agreement to
  obtain preferred access
• Economy wide or agri-food,
• Allows India to proceed with reforms at a
  measured pace without opening up the sector to
  the full impacts of globalization,
• Bilateral agreement can continue with
  countercyclical applied tariff rates or use
  minimum import prices to protect internal prices
• Canada has recently signed a bilateral Investment
  Agreement with India, which can be used as a
  platform for a bilateral trade agreement
  starting with agriculture and food

India is an opportunity for the Canadian
agri-food sector, accessing this opportunity
requires a coordinated and proactive approach
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Implications for Canada Accessing the
Opportunity
India and the Canadian Agri-Food Sector

• Raising Canadas profile in Indias agricultural
  and food economy,
• Assist India with knowledge transfer, such as
  co-operative marketing approaches used in Canada
  to assist India in managing the transition,
• This activity can provide much needed insight on
  market opportunities

India is an opportunity for the Canadian
agri-food sector, accessing this opportunity
requires a coordinated and proactive approach
25
Implications for Canada Accessing the
Opportunity
India and the Canadian Agri-Food Sector

• Leveraging Canadas Innovation Capacity
• As a higher cost agricultural sector, innovation
  must be a core strength of the Canadian agri-food
  sector
• An opportunity is for the Canadian sector to to
  develop products suitable to the Indian market
  and (through innovation) products and packaging
  which solves some of their distribution and cold
  supply chain constraints

India is an opportunity for the Canadian
agri-food sector, accessing this opportunity
requires a coordinated and proactive approach
26
Implications for Canada
India and the Canadian Agri-Food Sector

• India will have a larger presence on the world
  stage in the future,
• As with other BRICs India will highlight some
  competitive challenges for the Canadian agri-food
  sector,
• As India continues to globalize, there are market
  opportunities in India for the Canadian agri-food
  sector,
• Accessing these opportunities in a proactive
  manner is fundamental,
• CAPIs challenge to the sector is to seize the
  moment by embracing the rewarding opportunity.

India is an opportunity for the Canadian
agri-food sector, accessing this opportunity
requires a coordinated and proactive approach