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Investing in India’s Agricultural Markets: A Source of Growth and Equity? Maurice Landes Economic Research Service, U.S. D...
Background <ul><li>Despite improved overall economic performance, Indian agriculture has been faring poorly: </li></ul><ul...
Public investment and subsidies in Indian agriculture
Gross fixed capital formation in India
Background <ul><li>Growing evidence that lack of investment in agricultural markets is a problem: </li></ul><ul><ul><li>Ag...
Objectives <ul><li>Analyze the effects of improvements in agricultural marketing efficiency that might result from an impr...
Outline <ul><li>Overview of Indian policies affecting investment in agricultural markets  </li></ul><ul><li>Overview of In...
Policies Affecting Marketing Investment & Efficiency <ul><ul><li>Essential Commodities Act </li></ul></ul><ul><ul><ul><li>...
Policies Affecting Market Investment & Efficiency <ul><ul><li>Food Laws </li></ul></ul><ul><ul><ul><li>8 Ministries and mo...
Agricultural Subsidies <ul><li>Input subsidies totaled about Rs500 billion ($10 billion) in 2002/03 (Mullen, Orden & Gulat...
Agricultural Subsidies
Agricultural Tariffs <ul><li>Bound agricultural tariffs remain high, but most applied rates are substantially lower </li><...
Agricultural Tariffs
Model <ul><li>IFPRI “standard” single-country CGE (Lofgren, 2002; Robinson, et al., 1990) </li></ul><ul><ul><li>30 sectors...
Marketing Costs & Margins <ul><li>Focus on retailing costs & margins (farm gate-to-consumer) </li></ul><ul><ul><li>Direct ...
Food Retail Marketing Costs & Margins
Marketing Cost & Margin Estimates <ul><li>Generally small compared with evidence from commodity market studies </li></ul><...
Food Retail Marketing Costs & Margins
Scenarios <ul><li>Scenarios: </li></ul><ul><ul><li>50% increase in food retail marketing efficiency </li></ul></ul><ul><ul...
Impacts of Increased Marketing Efficiency
Impacts of Increased Marketing Efficiency
Impacts of Increased Marketing Efficiency
Impacts of Increased Marketing Efficiency
Scenario Comparisons <ul><li>With subsidy removal expenditure shifts from consumption to investment </li></ul><ul><ul><li>...
Scenario Comparisons
Scenario Comparisons
Scenario Comparisons
Summary <ul><li>Despite progress on the policy front, agribusiness continues to face a difficult policy environment in Ind...
References <ul><li>ERS “Briefing Room:”  http://ers.usda.gov/Briefing/India/ </li></ul><ul><li>Recent studies: </li></ul><...
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Bangalore Presentation Landes Burfisher Paper F N1

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mba(2007-2009)

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  • #1: Points: #2: Points: -Growth slowed since 1990; &lt;2% since late 1990s vs 4% target -Signs of some recent improvement #3: Points: #4: Points: -Most recent GOI economic survey -A critical political issue #5: Points: -Traditional export sectors relatively competitive -Few national companies; few large, vertically coordinated/integrated Companies in ag output markets
  • Public investment (Green line) explanation: -Solid: “In” = investment in ag production (mostly irrigation systems) -Dashed: “In/for” = includes investment in ag infrastrcuture (roads, markets); only available to 2000 Points: -Low public investment &amp; little growth -Private investment is higher &amp; shows more growth, but still low -Relatively high &amp; rising subsidies -Subsidies about 3X public investment -Subsidy &gt; investment even when private investment included
  • Points: -Growth in total investment contrasts with investment in agriculture -Investment in &amp; for agriculture shows somewhat more positive picture in terms of level and trend…available only to 2000.
  • #1: Points: #2: Points: -Growth slowed since 1990; &lt;2% since late 1990s vs 4% target -Signs of some recent improvement #3: Points: #4: Points: -Most recent GOI economic survey -A critical political issue #5: Points: -Traditional export sectors relatively competitive -Few national companies; few large, vertically coordinated/integrated Companies in ag output markets
  • #1: Points: #2: Points: -Growth slowed since 1990; &lt;2% since late 1990s vs 4% target -Signs of some recent improvement #3: Points: #4: Points: -Most recent GOI economic survey -A critical political issue #5: Points: -Traditional export sectors relatively competitive -Few national companies; few large, vertically coordinated/integrated Companies in ag output markets
  • #1: Points: #2: Points: -Growth slowed since 1990; &lt;2% since late 1990s vs 4% target -Signs of some recent improvement #3: Points: #4: Points: -Most recent GOI economic survey -A critical political issue #5: Points: -Traditional export sectors relatively competitive -Few national companies; few large, vertically coordinated/integrated Companies in ag output markets
  • A quick look at some of the policies that have constrained investment, and recent reforms: ECA: Now seldom used, although still a concern…recently invoked in Maharashtra to try to address shortage of wheat. APMC Acts: By banning sales outside regulated markets, they prevent most contract farming and most private investment in markets. SSI reservations: Now applies to only a few industries, but explains why al aspects of Indian agribusiness dominated by small scale, low technology, non-integrated firms.
  • A quick look at some of the policies that have constrained investment, and recent reforms: ECA: Now seldom used, although still a concern…recently invoked in Maharashtra to try to address shortage of wheat. APMC Acts: By banning sales outside regulated markets, they prevent most contract farming and most private investment in markets. SSI reservations: Now applies to only a few industries, but explains why al aspects of Indian agribusiness dominated by small scale, low technology, non-integrated firms.
  • Points: Credit Policy: Improvements in credit market conditions for both growers and businesses have probably been one of the biggest changes … chart Both increased availability and lower rates FDI Policy: Hasn’t led to major inflows for agribusiness yet, but this may be changing The restriction on multi-brand retailing is a constraint, but the key restraint maybe the array of regulations and policies that have also drained incentives for domestic investors.
  • Points: Credit Policy: Improvements in credit market conditions for both growers and businesses have probably been one of the biggest changes … chart Both increased availability and lower rates FDI Policy: Hasn’t led to major inflows for agribusiness yet, but this may be changing The restriction on multi-brand retailing is a constraint, but the key restraint maybe the array of regulations and policies that have also drained incentives for domestic investors.
  • Points: Credit Policy: Improvements in credit market conditions for both growers and businesses have probably been one of the biggest changes … chart Both increased availability and lower rates FDI Policy: Hasn’t led to major inflows for agribusiness yet, but this may be changing The restriction on multi-brand retailing is a constraint, but the key restraint maybe the array of regulations and policies that have also drained incentives for domestic investors.
  • Points: Credit Policy: Improvements in credit market conditions for both growers and businesses have probably been one of the biggest changes … chart Both increased availability and lower rates FDI Policy: Hasn’t led to major inflows for agribusiness yet, but this may be changing The restriction on multi-brand retailing is a constraint, but the key restraint maybe the array of regulations and policies that have also drained incentives for domestic investors.
  • Points: Credit Policy: Improvements in credit market conditions for both growers and businesses have probably been one of the biggest changes … chart Both increased availability and lower rates FDI Policy: Hasn’t led to major inflows for agribusiness yet, but this may be changing The restriction on multi-brand retailing is a constraint, but the key restraint maybe the array of regulations and policies that have also drained incentives for domestic investors.
  • Points: Credit Policy: Improvements in credit market conditions for both growers and businesses have probably been one of the biggest changes … chart Both increased availability and lower rates FDI Policy: Hasn’t led to major inflows for agribusiness yet, but this may be changing The restriction on multi-brand retailing is a constraint, but the key restraint maybe the array of regulations and policies that have also drained incentives for domestic investors.
  • Points: Credit Policy: Improvements in credit market conditions for both growers and businesses have probably been one of the biggest changes … chart Both increased availability and lower rates FDI Policy: Hasn’t led to major inflows for agribusiness yet, but this may be changing The restriction on multi-brand retailing is a constraint, but the key restraint maybe the array of regulations and policies that have also drained incentives for domestic investors.
  • Points: Credit Policy: Improvements in credit market conditions for both growers and businesses have probably been one of the biggest changes … chart Both increased availability and lower rates FDI Policy: Hasn’t led to major inflows for agribusiness yet, but this may be changing The restriction on multi-brand retailing is a constraint, but the key restraint maybe the array of regulations and policies that have also drained incentives for domestic investors.
  • Points: Credit Policy: Improvements in credit market conditions for both growers and businesses have probably been one of the biggest changes … chart Both increased availability and lower rates FDI Policy: Hasn’t led to major inflows for agribusiness yet, but this may be changing The restriction on multi-brand retailing is a constraint, but the key restraint maybe the array of regulations and policies that have also drained incentives for domestic investors.
  • Points: Credit Policy: Improvements in credit market conditions for both growers and businesses have probably been one of the biggest changes … chart Both increased availability and lower rates FDI Policy: Hasn’t led to major inflows for agribusiness yet, but this may be changing The restriction on multi-brand retailing is a constraint, but the key restraint maybe the array of regulations and policies that have also drained incentives for domestic investors.
  • Points: Credit Policy: Improvements in credit market conditions for both growers and businesses have probably been one of the biggest changes … chart Both increased availability and lower rates FDI Policy: Hasn’t led to major inflows for agribusiness yet, but this may be changing The restriction on multi-brand retailing is a constraint, but the key restraint maybe the array of regulations and policies that have also drained incentives for domestic investors.
  • Points: Credit Policy: Improvements in credit market conditions for both growers and businesses have probably been one of the biggest changes … chart Both increased availability and lower rates FDI Policy: Hasn’t led to major inflows for agribusiness yet, but this may be changing The restriction on multi-brand retailing is a constraint, but the key restraint maybe the array of regulations and policies that have also drained incentives for domestic investors.
  • Points: Credit Policy: Improvements in credit market conditions for both growers and businesses have probably been one of the biggest changes … chart Both increased availability and lower rates FDI Policy: Hasn’t led to major inflows for agribusiness yet, but this may be changing The restriction on multi-brand retailing is a constraint, but the key restraint maybe the array of regulations and policies that have also drained incentives for domestic investors.
  • Points: Credit Policy: Improvements in credit market conditions for both growers and businesses have probably been one of the biggest changes … chart Both increased availability and lower rates FDI Policy: Hasn’t led to major inflows for agribusiness yet, but this may be changing The restriction on multi-brand retailing is a constraint, but the key restraint maybe the array of regulations and policies that have also drained incentives for domestic investors.
  • Points: Credit Policy: Improvements in credit market conditions for both growers and businesses have probably been one of the biggest changes … chart Both increased availability and lower rates FDI Policy: Hasn’t led to major inflows for agribusiness yet, but this may be changing The restriction on multi-brand retailing is a constraint, but the key restraint maybe the array of regulations and policies that have also drained incentives for domestic investors.
  • Points: Credit Policy: Improvements in credit market conditions for both growers and businesses have probably been one of the biggest changes … chart Both increased availability and lower rates FDI Policy: Hasn’t led to major inflows for agribusiness yet, but this may be changing The restriction on multi-brand retailing is a constraint, but the key restraint maybe the array of regulations and policies that have also drained incentives for domestic investors.
  • Transcript of "Bangalore Presentation Landes Burfisher Paper F N1"

    1. 1. Investing in India’s Agricultural Markets: A Source of Growth and Equity? Maurice Landes Economic Research Service, U.S. Department of Agriculture Mary Burfisher United State Naval Academy
    2. 2. Background <ul><li>Despite improved overall economic performance, Indian agriculture has been faring poorly: </li></ul><ul><ul><li>Low yields relative to world averages </li></ul></ul><ul><ul><li>Slowed growth of output and yields </li></ul></ul><ul><ul><li>Subsidies rising while rates of new public & private investment remain low </li></ul></ul><ul><ul><li>Supply-demand imbalance an emerging threat to food price stability </li></ul></ul><ul><ul><li>Lack of consensus on reform </li></ul></ul>
    3. 3. Public investment and subsidies in Indian agriculture
    4. 4. Gross fixed capital formation in India
    5. 5. Background <ul><li>Growing evidence that lack of investment in agricultural markets is a problem: </li></ul><ul><ul><li>Agricultural marketing and processing system is fragmented, inefficient & mostly unready to compete in global markets </li></ul></ul><ul><ul><ul><li>World Bank studies </li></ul></ul></ul><ul><ul><ul><li>ERS studies </li></ul></ul></ul><ul><li>The economy-wide implications of increasing investment & efficiency in agricultural markets could be large in a developing economy like India </li></ul>
    6. 6. Objectives <ul><li>Analyze the effects of improvements in agricultural marketing efficiency that might result from an improved climate for agribusiness investment. </li></ul><ul><li>Compare the impacts of marketing efficiency gains with more “traditional” reforms to agricultural subsidies and tariffs. </li></ul><ul><li>Include household distribution of impacts </li></ul>
    7. 7. Outline <ul><li>Overview of Indian policies affecting investment in agricultural markets </li></ul><ul><li>Overview of Indian subsidy & tariff policies </li></ul><ul><li>Overview of model </li></ul><ul><ul><li>Marketing costs </li></ul></ul><ul><li>Scenarios </li></ul><ul><ul><li>Increased marketing efficiency </li></ul></ul><ul><ul><li>Subsidy removal </li></ul></ul><ul><ul><li>Tariff removal </li></ul></ul>
    8. 8. Policies Affecting Marketing Investment & Efficiency <ul><ul><li>Essential Commodities Act </li></ul></ul><ul><ul><ul><li>State restrictions on private movement & storage </li></ul></ul></ul><ul><ul><li>Agricultural Produce Marketing Acts </li></ul></ul><ul><ul><ul><li>State restrictions on private marketing </li></ul></ul></ul><ul><ul><li>Small Scale Industry Reservations </li></ul></ul><ul><ul><ul><li>Most food processing reserved for small firms ($247,000 of capital assets) until 1997 </li></ul></ul></ul><ul><ul><li>Tax Policy </li></ul></ul><ul><ul><ul><li>Excise, sales, octroi taxes impede processing & movement </li></ul></ul></ul><ul><ul><li>Border/Commercial Policy </li></ul></ul><ul><ul><ul><li>High tariffs & quantitative restrictions impede price transmission; development of efficient processing & export supply chains </li></ul></ul></ul>
    9. 9. Policies Affecting Market Investment & Efficiency <ul><ul><li>Food Laws </li></ul></ul><ul><ul><ul><li>8 Ministries and more than 12 legislative acts </li></ul></ul></ul><ul><ul><li>Land Tenure Policy </li></ul></ul><ul><ul><ul><li>Small holdings complicate vertical coordination/ integration </li></ul></ul></ul><ul><ul><li>Labor Policy </li></ul></ul><ul><ul><ul><li>Proliferation of labor laws affect ”organized sector” firms </li></ul></ul></ul><ul><ul><li>Policies have begun to change, but private investors still face a difficult environment in agricultural markets </li></ul></ul>
    10. 10. Agricultural Subsidies <ul><li>Input subsidies totaled about Rs500 billion ($10 billion) in 2002/03 (Mullen, Orden & Gulati): </li></ul><ul><ul><li>Includes electricity (about 70%), fertilizer (about 16%) & irrigation water (about 13%) </li></ul></ul><ul><li>Subsidies account for about 11 percent of agricultural GDP; public investment about 5 percent </li></ul><ul><li>“ Foodgrain subsidy” not covered </li></ul><ul><ul><li>Producer/consumer incidence varies by year </li></ul></ul><ul><ul><li>Logistical margins a large part of price wedge calculation </li></ul></ul>
    11. 11. Agricultural Subsidies
    12. 12. Agricultural Tariffs <ul><li>Bound agricultural tariffs remain high, but most applied rates are substantially lower </li></ul><ul><ul><li>Current applied rates are zero for major commodities, including wheat, corn, pulses, edible oils & cotton </li></ul></ul><ul><li>Reluctant to lower bound rates in order to retain flexibility to meet producer/consumer price goals </li></ul>
    13. 13. Agricultural Tariffs
    14. 14. Model <ul><li>IFPRI “standard” single-country CGE (Lofgren, 2002; Robinson, et al., 1990) </li></ul><ul><ul><li>30 sectors: </li></ul></ul><ul><ul><ul><li>12 crop/livestock sectors </li></ul></ul></ul><ul><ul><ul><li>7 processed food sectors </li></ul></ul></ul><ul><ul><li>3 trade service sectors </li></ul></ul><ul><ul><ul><li>Agricultural & food retail </li></ul></ul></ul><ul><ul><ul><li>Agricultural production inputs </li></ul></ul></ul><ul><ul><ul><li>All other </li></ul></ul></ul><ul><ul><li>5 rural & 5 urban households (Saluja & Yadav, 2006) </li></ul></ul>
    15. 15. Marketing Costs & Margins <ul><li>Focus on retailing costs & margins (farm gate-to-consumer) </li></ul><ul><ul><li>Direct & indirect impacts on: </li></ul></ul><ul><ul><ul><li>Producer & consumer prices </li></ul></ul></ul><ul><ul><ul><li>Factor returns </li></ul></ul></ul><ul><ul><ul><li>Household consumption & investment </li></ul></ul></ul><ul><li>Calculation: </li></ul><ul><ul><li>Based on total of transport & trade services inputs allocated for domestically produced goods. </li></ul></ul>
    16. 16. Food Retail Marketing Costs & Margins
    17. 17. Marketing Cost & Margin Estimates <ul><li>Generally small compared with evidence from commodity market studies </li></ul><ul><li>Examples: </li></ul><ul><ul><li>Wheat: 52% producer-to-consumer (Gandhi & Koshy, 2007) </li></ul></ul><ul><ul><li>Poultry: Rs32/kg producer-to-consumer nonintegrated vs. Rs11/kg with vertical integration (Landes & Persaud, 2003) </li></ul></ul><ul><ul><li>Horticulture: 85-88% producer-to consumer (World Bank, 2007) </li></ul></ul><ul><li>We maintain consistency with GTAP database </li></ul>
    18. 18. Food Retail Marketing Costs & Margins
    19. 19. Scenarios <ul><li>Scenarios: </li></ul><ul><ul><li>50% increase in food retail marketing efficiency </li></ul></ul><ul><ul><li>Removal of agricultural subsidies </li></ul></ul><ul><ul><li>Removal of agricultural tariffs </li></ul></ul><ul><li>Why a 50% increase in marketing efficiency? </li></ul><ul><ul><li>Margins implied in database are smaller than those found in market studies </li></ul></ul><ul><ul><li>View as medium/longer term potential gain </li></ul></ul>
    20. 20. Impacts of Increased Marketing Efficiency
    21. 21. Impacts of Increased Marketing Efficiency
    22. 22. Impacts of Increased Marketing Efficiency
    23. 23. Impacts of Increased Marketing Efficiency
    24. 24. Scenario Comparisons <ul><li>With subsidy removal expenditure shifts from consumption to investment </li></ul><ul><ul><li>Lower farm output, factor returns & consumption (at least in the medium term) </li></ul></ul><ul><ul><li>Higher food prices </li></ul></ul><ul><ul><li>Adverse impacts on low income rural & urban households </li></ul></ul><ul><li>With tariff removal expenditure shifts from investment to consumption </li></ul><ul><ul><li>Output & factor returns rise as resources are reallocated </li></ul></ul><ul><ul><li>Small price impacts except in heavily traded/protected sectors </li></ul></ul><ul><ul><li>Higher factor returns benefit low income households </li></ul></ul>
    25. 25. Scenario Comparisons
    26. 26. Scenario Comparisons
    27. 27. Scenario Comparisons
    28. 28. Summary <ul><li>Despite progress on the policy front, agribusiness continues to face a difficult policy environment in India </li></ul><ul><ul><li>Particularly for larger-scale, horizontally & vertically integrated businesses common elsewhere </li></ul></ul><ul><li>Increased food retail marketing efficiency appears to have significant economy-wide income, employment, and welfare implications </li></ul><ul><ul><li>A potentially important complement to subsidy and border policy reform </li></ul></ul><ul><li>Need better data on marketing costs & margins & on potential for efficiency gains to strengthen this exploratory analysis </li></ul>
    29. 29. References <ul><li>ERS “Briefing Room:” http://ers.usda.gov/Briefing/India/ </li></ul><ul><li>Recent studies: </li></ul><ul><ul><li>The Environment for Agricultural and Agribusiness Investment in India Indian Wheat and Rice Sector Policies and the Implications of Reform </li></ul></ul><ul><ul><li>The Role of Policy and Industry Structure in India’s Oilseed Markets </li></ul></ul><ul><ul><li>Prospects for India's Emerging Apple Market </li></ul></ul><ul><ul><li>Growth Prospects for India's Cotton and Textile Industries </li></ul></ul><ul><ul><li>India's Poultry Sector: Development and Prospects </li></ul></ul>
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