measures of competitiveness in indian agriculture

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Page 1: Measures of competitiveness in Indian Agriculture

COME

Page 2: Measures of competitiveness in Indian Agriculture

SUBMITTED BY:

Dhwani Joshi

Haiyumkhan Pathan

SUBMITTED TO:

Dr. R. S. Pundir

Page 3: Measures of competitiveness in Indian Agriculture

INTRODUCTION The question of competitiveness of Indian agriculture has

assumed great importance in the light of WTO agreement on

agriculture.

In certain quarters there is a feeling that since India is

endowed with rich natural resources, fertile land, rich soils,

many snow fed and monsoon rivers, large river valleys, mild

tropical and sub-tropical climate and sufficient rainfall, it

could be one of the most efficient producers of agricultural

commodities.

Indian farmers have acquired a great deal of knowledge and

skills and are efficient enough to be able to become

internationally competitive.

Identification and enhancement of competitiveness is , in fact

, the essential ingredient of a successful trade strategy.

Page 4: Measures of competitiveness in Indian Agriculture

AGRICULTURE IN THE CHANGING GLOBAL SCENARIO

Global competitiveness is the ability to produce

globally acceptable quality at globally comparable

cost.

Steady globalization of trade has profound

implications for future agricultural development.

The diversity of India’s agro-ecological setting, high

bio-diversity and relatively low cost of labour provide

potential for agricultural competitiveness in a

globalized economy.

It is expected that with increasing globalization of

markets over the years there will be demands for

agricultural intensification.

Page 5: Measures of competitiveness in Indian Agriculture

India’s changing Agri. exports & imports

Source: Agricultural Statistics at a Glance 2008

Page 6: Measures of competitiveness in Indian Agriculture

Agri. exports & imports as % of agri. GDP

Source: Agricultural Statistics at a Glance 2008

Page 7: Measures of competitiveness in Indian Agriculture

Comparative advantage is widely believed byeconomists to be a key determinant ofinternational production and trade patterns.

In business schools and business circles muchgreater emphasis is placed on the role ofcompetitive advantage as a predictor of theeconomic fortunes not just of firms, but ofnations as a whole.

COMPARATIVE ADVANTAGE AND COMPETITIVENESS:

Page 8: Measures of competitiveness in Indian Agriculture

Comparative advantage is used to determine the direction oftrade.

Competitive advantage impacts on resource allocation, tradepatterns and trade volumes.

Comparative advantage (of a country or firm, for example) isgiven by the access to certain resources that others don't have.Usually this is related to natural resources. Here it doesn'tmatter if you are or are not the owner.

Competitive advantages are created by combining differentresources, primarily knowledge. In management this isequivalent to "rise barriers" for competitors, in the sense that atrue competitive advantage is that one that is difficult to becopied by the competitors (although not impossible.)

Due to the nature of the comparative advantages, it is usuallysaid that they provide you a "static" advantage, somethingthat others can surpass by using their competitive advantages,which are said to be "dynamic."

Page 9: Measures of competitiveness in Indian Agriculture

Major Agricultural Exports: % distribution (Diversified basket)

Source: Agricultural Statistics at a Glance 2008, Government of India

Page 10: Measures of competitiveness in Indian Agriculture

Major Agricultural Imports:% distribution(concentrated basket)

Source: Agricultural Statistics at a Glance 2008, Government of India

Page 11: Measures of competitiveness in Indian Agriculture

MEASUREMENT OF

COMPETITIVENESS:

Net Protection Coefficient (NPC)

Effective Protection Coefficient (EPC)

Effective Subsidy Coefficient (ESC)

Domestic Resource Cost (DRC)

Page 12: Measures of competitiveness in Indian Agriculture

NOMINAL PROTECTION COEFFICIENT(NPC)

The nominal protection coefficient (NPC) is a

measure of competitiveness. It is calculated as the ratio

between the domestic price (PD) to the international price

(PR) of a comparable grade of commodity, adjusted for all

transfer costs such as freight, insurance, handling costs,

margins, losses, etc. Symbolically, it is given by Equation:

PD

NPC=

PR

If NPC<1, Commodity is competitive

If NPC>1, Commodity is not competitive

Page 13: Measures of competitiveness in Indian Agriculture

Year NPC

1985-86 1.46

1986-87 1.58

1987-88 1.44

1988-89 1.8

1989-90 1.76

1990-91 1.76

1991-92 1.56

1992-93 1.26

1993-94 1.22

1994-95 1.15

1995-96 0.97

1996-97 1.04

1997-98 0.76

1998-99 0.73

1999-2000 0.63

2000-01 0.67

2001-02 0.46

2002-03 0.6

2003-04 0.49

2004-05 0.47

NPC of Groundnut

Source: Pre and post WTO changes in oilseed

Page 14: Measures of competitiveness in Indian Agriculture

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0.4

0.6

0.8

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NPC of Groundnut

Page 15: Measures of competitiveness in Indian Agriculture
Page 16: Measures of competitiveness in Indian Agriculture

Year NPC1986 1.71987 1.91988 1.71989 1.291990 1.371991 0.841992 0.791993 0.821994 0.791995 0.871996 0.781997 0.911998 0.911999 0.82000 0.682001 0.62002 0.542003 0.612004 0.62

NPC of Tea

Page 17: Measures of competitiveness in Indian Agriculture

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NPC of Tea

Page 18: Measures of competitiveness in Indian Agriculture

Price Competitiveness of Indian Rice (NPCs)

Source: Hoda and Gulati, 2008 (WTO, Agricultural Negotiations, and Developing Countries: Lessons from the Indian Experience, OUP/JHUP)

Page 19: Measures of competitiveness in Indian Agriculture

Wheat Trade and Protection (NPC) in India 1981-2005

Source: Hoda and Gulati, 2008 ( WTO, Agricultural Negotiations, and DevelopingCountries: Lessons from the Indian Experience, OUP/JHUP)

Page 20: Measures of competitiveness in Indian Agriculture

EFFECTIVE PROTECTION COEFFICIENT (EPC)

The effective protection coefficient (EPC) is a ratio of value-added in

domestic prices (i.e., the prices paid and received by growers) to its

value-added in world prices (border prices). This coefficient indicates

the degree of policy transfer arising with output and tradable input

policy distortions. An EPC greater than one indicates that the sector

receives a "net" subsidy for its activities. Conversely, if the EPC is

less than one, it indicates that the sector is penalized by a net

taxation when both tradable input and output distortions are

accounted for.

EPC= Value added of commodity at domestic prices

Value added at world reference price

The difference between NPC and EPC is that EPC takes output

prices and cost of traded inputs in to accounts simultaneously. Since

the EPC includes inputs, it is potentially a more encompassing

assessment of the protective structure of intervention.

Page 21: Measures of competitiveness in Indian Agriculture

INTERPRETING EPC

If EPC > 1, domestic producers are receiving a greater return on their

resources given intervention then they would without intervention. They are

enjoying positive protection.

If EPC < 1, domestic producers could have received a higher return if the faced

border prices instead of domestic prices on both inputs and outputs. They are

receiving negative protection.

If EPC = 1, Producers are neither favored nor discriminated against. The

structure of protection is neutral.

Page 22: Measures of competitiveness in Indian Agriculture

0

1

2

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9

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EPC of Milk

Page 23: Measures of competitiveness in Indian Agriculture

EFFECTIVE SUBSIDY COEFFICIENT (ESC)

ESC is an attempt to enlarge further information content of the EPC by

explicitly taking into account the taxes or subsidies applied to primary

input such as land and capital.

Value added in domestic prices ± Net subsidies on primary inputs

ESC =

Value added at border prices

Page 24: Measures of competitiveness in Indian Agriculture

DOMESTIC RESOURCE COST (DRC)

DRC is the value of domestic resources needed to save or earn a

unit of foreign exchange through the production of a commodity.

aij, j = k + 1 to n, are the technical coefficients for domestic

and non-tradable inputs.

Vj are the shadow prices of domestic resources and on-

tradable inputs.

Pir are the border/reference prices of traded output.

aij, j = 1 to k are the technical coefficients for traded inputs

and are the border/reference pricesof traded inputs.

Pjr : are the border/reference prices of traded inputs.

Where,

Page 25: Measures of competitiveness in Indian Agriculture

DRC<1 indicates that the country has the comparative

advantage in the production activity of the product.

DRC>1 indicates negative social profits.

Page 26: Measures of competitiveness in Indian Agriculture

0

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0.4

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0.8

1

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DRC of Groundnut

Page 27: Measures of competitiveness in Indian Agriculture

IMPORT AND EXPORT COMPETITIVENESS OF INDIAN AGRICULTURE: This is done to analyze the competitiveness of some

important agricultural crops by making use of the abovemeasures of competitiveness.

For import competitiveness the only measure that isemployed is a Net Protection Coefficient (NPC).

All the four measures of competitiveness namely, The NetProtection Coefficient (NPC), Effective ProtectionCoefficient (EPC), Effective Subsidy Coefficient (ESC) andthe Domestic Resource Cost (DRC) have been used to workout the export competitiveness of various crops at thestate level.

Page 28: Measures of competitiveness in Indian Agriculture

Raise investments in R & D and ruralinfrastructure (roads, irrigation, markets etc.),public and private.

Contain subsidies on fertilizer, power andwater leading to huge inefficiency.

Improve fragmented value chains bymainstreaming small holders.

How can we enhance competitiveness of Indian agriculture?

Page 29: Measures of competitiveness in Indian Agriculture

Abrol, I. P. Agriculture in India. Centre for advancement of sustainableAgriculture.

Bhalla, G.S., State of the Indian Farmer- A millenium study Vol. 19, pp. 241to 271.

Candler, W., India: the dairy revolution the impact of dairy development InIndia.

Chandrashekhar, G. Can Indian agriculture become globally competitive?(Sep. 2002) The Hindu business line.

Gill, S.S. and Brar, J.S., Global market & competitiveness of IndianAgrriculture.

Hoda and Gulati, 2008 ( WTO, Agricultural Negotiations, and DevelopingCountries: Lessons from the Indian Experience, OUP/JHUP)

Karnool, N.N. and Naik, A.D., Pre and Post WTO changes in oilseedeconomy of Karnataka.

Nagoor, B.H., Performance of India’s Tea exports, A comparative study ofmajor tea exporting countries of the world.

Peter Neary, Competitive versus comparative advantage.

Saxena, R., Competitiveness of Indian Dairy sector, IRMA.

Page 30: Measures of competitiveness in Indian Agriculture

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