Opinion | Spotlight on clusters a welcome step for agri-exports

The AEP promises, at the very least, a stable export regime that will refrain from interference

It’s election time in India. Politicians know that the agricultural household voter still holds the key to the ‘vote bank’. Most farm-related election posturing takes the form of loan waivers or an increase in Minimum Support Prices. Between elections, little is done to increase agricultural productivity or foster a transition from the farm sector to services and manufacturing. Elections come and go, but the life of the marginal farmer stays largely the same.

A small step in the right direction was taken with the recent cabinet approval of an Agriculture Export Policy (AEP). The policy aims to double India’s agricultural exports to $60 billion a year by 2022. It aims to diversify India’s agricultural export basket, widen the footprint of destinations and boost high-value and value-added agricultural exports.

First, the facts. India produces about 280 million tonnes of foodgrain every year. China, US, Brazil and India are the four largest foodgrain producers in the world, each producing more than the combined output of the European Union. India leads the world in the production of basmati rice, millets, pulses, chickpea, ginger, chilli, okra, banana, mango and papaya. For dairy, marine, poultry and meat products, India is a significant player in the global market.

Much of India’s production is retained for domestic use, and agricultural trade policy has been used in an ad-hoc manner to curb domestic food inflation. India’s agricultural export market has grown meaningfully only in the last two decades. Today, about half of India’s exports comprise rice, wheat and marine products.

Basmati rice, non-basmati rice, wheat, vegetables, fruits, peanuts and shrimps top the exports basket. While agricultural production in many states is varied, basmati is grown principally in Haryana and Punjab, wheat in Uttar Pradesh and Punjab, bananas in Tamil Nadu and Gujarat, mangoes in Uttar Pradesh and Andhra Pradesh, and shrimp is primarily harvested in Andhra Pradesh and Tamil Nadu.

As of now, India does not make it to the top ten countries in terms of agricultural exports. The AEP put out by the union ministry of commerce and industry seeks to tap this opportunity. Even though the objective of doubling exports in four years (implying an annual growth rate of 19%) is unrealistic, it is a welcome development for several reasons.

First, the policy has been developed in close consultation with states recognizing the geographic diversity of production and states’ constitutional role in nurturing agricultural development. Second, it is a nuanced approach by geography and products rather than the previous approach of simply increasing inputs. And finally, it tackles the entire ecosystem related to enabling market access and acceptability based on the introduction of agricultural clusters.

The idea of clustering is well-known in industry, and to some extent, in agricultural products—wine being a classic example. What France has done for wine—by clustering, branding and promoting—has been followed by others such as Japan (Kobe beef), Colombia (Juan Valdez coffee) and New Zealand (Manuka honey). Clustering is at the root of branding agricultural commodities (like coffee and beef) and value-added products (like wine). A working definition for a cluster is: “geographic concentrations of inter-connected companies and institutions in a particular field" (Michael Porter, 1998).

A Food and Agriculture Organization (FAO) definition extends this to the agricultural sector to include vertical relationships among suppliers of raw materials and production inputs, agricultural producers, processors and exporters, as well as horizontal relationships among producers such as through cooperatives or producer companies, and by supporting relationships between producers and facilitating organizations like government export promotion agencies, research institutes and business service providers. The entire value network works to reinforce efficiency, quality, market acceptance and sustainability.

For the average farmer who holds a small plot in India, clustering is a very good idea and can bring great benefits. The most famous example of a successful cluster in India is that of the Gujarat Cooperative Milk Marketing Federation (branded Amul). The grape cluster in Maharashtra situated in the Pune area is a lesser known success. Mahagrapes was formed specifically to reduce the transaction costs of marginal farmers and to increase their incomes. It succeeded in doing so by providing common facilities for pre-cooling, cooling and storage of grapes, and by reducing the cost of market linkage for all members of the cooperative. Importantly, by using transparent standards of quality, a mutually-owned insurance system provides risk mitigation to all members.

The AEP proposes to nurture and build many such clusters for products like bananas, pomegranates, mangoes, tea, coffee and marine products. Even though it stops short of guaranteeing this, it promises, at the very least, a stable export regime that will refrain from interference. The policy brings a comprehensive yet nuanced approach to agricultural product development by involving the states.

Time will tell if this promising policy will bear fruit.

P.S: “If we should be blessed by some great reward, it’s the fruit of a seed planted by us in the past," said Gautama Buddha.

Narayan Ramachandran is chairman, InKlude Labs. Read Narayan’s Mint columns

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