CHAPTER - V

KERALA'S EXPORT bASKET: A DISAGGREGATED ANALYSIS

The economy of Kerala had shown a greater outward orientation from time

immemorial, in contrast to other regionslstates in the country. Kerala, consisting of the

erstwhile princely states of Travancore and Cochin, and British controlled Malabar, was

known as a major international trading centre. Cardamom and cinnamon from the region

were exchanged with ancient Babylonia as early as 3000 BC. Ancient Egypt and Israel

traded with Kerala via the Phc~enicians. Kerala soon became an important entrepot

connecting Europe, the Middle East, South Asia and China. The advent of British

colonialism stimulated the penetration of colonial capital into the plantation sector in the

region. "The process of integration of the Travancore economy with the global commodity

market in a subordinate colonial position, which commenced in the second half of the 19'

century, created an enclave pattern of development. This process was accelerated by the

channelisation of private foreign capital into plantations, which led to the hegemony of

foreign capital over this vital sector of the economy" (Ramachandran Nair, 1999).

The industrial structure viitnessed dominance of export-oriented plantations and

agro-processing industries. As a r:sult, merchant capital and finance capital expanded, but

this did not help the development 3f an industrial base in the region. "Foreign trade plays an

important role in the economy of the state. Many of its traditional crops and industries are

dependent upon overseas exports for their prosperity" (Govt. of Kerala, State Planning

Board, 1998). This implies that anything that happens to Kerala's overseas exports will have

its impact on the state's economy and prosperity. The implications of the WTO on Kerala's

economy have to be analysed from tnis angle.

5.1. Kerala's Export Basket

State-wise data on exports are not easily available. The role of exports in the

economic development at the state-level was not adequately recognized till recently. In

India, export promotion was considered to be a Central subject coming under the purview of

the Commerce Ministry. Export promotion policies were designed as part of the annual,

triennial and later long-term Exim policies of the Commerce Ministry, and various export

promotional schemes were implemented by the Central agencies. With the latest

developments in the global tradin: scenario, now it is well recognized that infrastructure

development is the key aspect for t xport production and export performance. The role of the

state governments in this regard cannot be underestimated. The latest Exim policies have

emphasized this aspect, and a scheme called ASIDE (Assistance to States for Infrastructure

Development for Exports) has ]been implemented. As part of this, state-wise export

performance data will be provided in the statistical reports. For this purpose, the export

declaration forms submitted by the exporters to the - customs authorities should include the

name of the state in which the export processing has been completed.

Port-wise data on exports may include items processed in other states and also exclude items

shipped through ports in other slates. Thus, though state-wisc data inlay not be available

exactly, various agencies have compiled data on exports at the state-level.

The State Planning Board has compiled commodity composition of the export basket

of Kerala as of 1996 (Table - 5.1). The share of Kerala in India's exports of these items is

- very high - 97 per cent for pepper, 06 per cent for coir and coir products and 68 per cent for

coffee. Marine products and cashew are the two commodities whose exports have proved to

be most buoyant during the post-independence period

Table- 5.1: Export Basket - Kerala, 1996-97

Pepper 46264.00 405.17 Cardamom 53.00 2.45 Cuny powder 6.35 3.73 Ginger 905.00 25.93 Turmeric 2832.00 10.63 Spices and oleoresins 1359.00 98.00 Cashew kernel 37183.00 727.70 Coffee 122455.00 728.50

445 12.00 205.3 1 Source: Economic Review, State Planning Board, Govt. of Kerala,

Thiruvanmthapuram, 1998 In the early 1950s, marine products accounted for a little above one per cent of

Kerala's export earnings. Since the mid-1970s they have accounted for around one-fifth of

the value of the state's foreign exports. The share of cashew kernel exports also tended to

rise though less dramatically than the former t i l l the mid-1970s. Important spices exported

from Kerala are pepper, cardamom, chillies, ginger and turmeric. Of these, Kerala has a near

monopoly in the production and export of pepper. The major export items of Kerala have

remained unchanged over a lonl: period of time - mainly agricultural and agro-based items

like marine products, spices, cc'ffee, tea, cashew kernel and coir products. Some of these

items are considered to be the n~onopoly export commodities of the state. Based on the data

on comrnodity composition for the period from 1996-97 to 2002-03, the export figures in

USD terms increased with fluctuations for items like cashew and marine products. There

was decline for spices, coffee 3nd tea and stagnation for coir exports. The share of these

commodities in the total expo3 value also declined for all the commodities. This is the

general phenomenon in the case 01' the share of agricultural exports in the total export

values.

Table- 5.2: Export Trends in Commodities of Maior Interest to Kerala

Commodities 1 1996-97 / 1997-98 Exports (India) 1 33498 1 35048 A&. & Allied 6868 Cashew 3 62 Coffee 402 Marine Prod. 1130 Spices 339 Tea 292 Coir Mfg % Share Exports (India) A@.& Allied Cashew Coffee Marine prod. Spices Tea Coir Mfg.

O h Change Exports (India) Agri. &Allied Cashew Coffee Marine Prod. Spices Tea Coir Mfg.

Source: -3.06 1 12.48

Foreign Trade & fg

7 ~ i l l i o n i USD an

9.58 1 -38.59 1 4.80 ', CMIE, Mumbai, September.

percenta 2001 -02

43976 592 1

376 230

1240 315 36 1 62

100.00 13.46 0.86 0.52 2.82 0.72 0.82 0.14

Another major export item, which is not traditionally included in the category of

exports from Kerala, is manpower. The export of manpower is best described as movement

of persons across national borders i~nd lnay direclly come undcr ihc rules of the W'I'O. Tlic

developing economies including lndia have been negotiating for further relaxations in

immigration laws of the advanced countries under the aegis of the GATS. They have been

demanding relaxations in 'Mode 4' of the supply of service-providers as a quidpro quo for

liberalizations in various service s:ctors of their economy. This is an area of utmost

importance to the state of Kerala as export of skilled and educated manpower is crucial to

the development of the economy. In the backdrop of industrial stagnation and dominance of

plantations in agriculture, export o ' manpower is a remedy for the unemployment of the

educated in the state.

Diversification to export i ems was aimed a t ,by setting up of Cochin Export

Processing Zone and later Science and Technology Park (STP) at Trivandrum. Both CEPZ

and STP are special infrastructure enclaves for thZ purpose of exclusive export promotion

drive. While the former was develaped to cater to the regional economic growth through the

export o f items having linkages with the regional economy, the latter was meant for the

export promotion of electronics ant1 software.

5.2. Trade liberalization on Kernla economy

Being a regional economy in lndia, Kerala cannot have an independent economic

policy relating to its exports and imports. Some policies being implemented by the

Government of lndia have obvious fall-out effects on the state's economy. Various authors

have expressed anxieties over implications of trade policies at the instance o f WTO

Agreements on the export prospects of commodities of interest to Kerala. "With the

economic reforms and commitments to the WTO and the consequent opening

up/globalisation of the Indian c.conomy, Kerala has been hit hard. Kerala's traditional

exports are now subjected to the, wild volatility of global markets. The compliance to the

WTO regime, pressures from the US Food and Drug Administration and application of non- -

economic issues such as social and labour standards are going to weaken most of Kerala's

exports and their production base. The impact of natural rubber, tea, coffee, cardamom,

pepper, coconut oil, etc., is far reaching " (Ramachandran Nair, 1999). Also, "some specific

measures like import liberalization, tariff reduction and removal of subsidies may lead to a

process of de-industrialization and the general principle of market forces in resource

allocation has the distortionary effe8:t of making a backward state like Kerala weak in the

bargain for the location of industrial ventures by big capital, national and foreign"

(Subramanian and Pillai, 1994).

The importing countries can invoke sanitary and phytosanitary measures in order to

protect human, animal or plant life or health. It is left to the country concerned to work out

its own acceptable level of risk, but the controls are to be used on a non-discriminatory

basis. In recent times, marine products exported from Kerala were subjected to this test of

acceptable level of risk by the US. The principle of pre-shipment inspection was also applied

and teams of inspectors from the US visited Kerala to make on-the-spot study of sanitary

conditions in prawn and fish proce::sing factories. Similarly, SPS measures are applied to

spices.

It is also projected that IPR protection is anti-competition and anti-liberalization, and

goes against the spirit of opening u ; ~ the world economy and global integration. Thus IPR

protection is being viewed as a barrier to trade. Granting IPR protection in areas like food,

seeds, chemicals, technology, dru~:s and pharmaceuticals, agriculture, horticulture and -

biotechnological processes including life forms like plants and animals has dangerous

implications. It is alleged that drug prices in lndia and Kerala inay go up and particularly in

Kerala it may affect public health care system, which is considered an important parameter

of the Kerala Model of developme~~t. Kerala's forests are considered a rich herbal chest.

Entry of MNCs into the drug indust~.y, buying up of traditional medicines and therapies and

subjecting them to patenting would Inpose immeasurable losses on Kerala's economy. I t is

also feared that in the rush for priviltisation, liberalization and globalisation, lndia may be

forced to roll back progressive lat~our laws. All these emerging developments in the Kerala

economy are associated directly or indirectly with India's econotnic reforms as well as the

WTO commitments India has already made.

The plantation industry in Kerala has been most vocal on protection ir the wake of '.

WTO agreements on the removal of quantitative restrictions. As a result, relatively steep

tariff walls were erected on the irnport of major plantation products (barring rubber). The

institution of safety valve mechiinisms to insulate coffee growers from fall in prices

demonstrate the significance of the Kerala plantation industry in the national agricultural

scenario.

Damodaran (2002) has elucidated uncertainties being faced by the plantation

industry in the phase of trade liberalization in the post-QR era. These uncertainties call for

non-conventional solutions. These uncertainties arise from information inadequacies in

relation to production, stocks ilnd consumption of plantation commodities. These

inadequacies produce serious 'price effects'. There is a great deal of confusion on the annual

output levels of plantation crops such as coffee and pepper, both at the national and

international levels. The global figures of production, consumption and stocks have become

less reliable. The consequence has been directionless swings in prices in the terminal and

futures markets. Thus the prices of coffee and pepper are largely dictated by distorted

information on the fundamentals of production, consumption and stocks, which causes -

irrational expectations in guiding the direction of prices.

Plantation crops with a preponderant domestic market ibcus, viz., natural rubber and

tea have uncertainties of a slightly different nature. In the case of natural rubber, one of the

major uncertainties has been the difference in perception of natural rubber held by

producers, dealers and tyre companies. These differing perceptions produce their dynamics

in terms of swings in natural rubber INR) prices. There are other uncertainties following the

dismantling of QRs in 2001-2002. l'he fluctuating trends in the ratio of domestic price to

international price have created problems for both rubber producers and manufacturers in

India. Since the tariff wall for na ural rubber produce is low, these fluctuations create

irrational expectations in the domestic market.

As far as tea is concerned, he price expectations and trends have much to do with

uncertainties in the import front. The absence of a futuristic price discovery mechanism adds

to the problems of the industry. '\Vhile uncertainties would be the way of life in a world.

where free multilateral trade is th,: norm, the inability of markets to convey and transmit

price signals based on fundamentals can be a major disadvantage. Very often, such

inabilities arise from absence of information on crop production and production trends,

changes in consumption patterns, and distribution of commodity stocks between the

producers and processors. Kerala could induce major improvements in agricultural

commodity statistics', (Damodaran, 2002).

A futuristic price discove~y mechanism could serve to convey the relative adequacy

or inadequacy of stocks in the rnarket. This calls for establishment of futures market for

plantation commodities. The f u t ~ res market enables a valid system of price discovery. This

obviates the need for resorting to command and control systems to establish production

fundamentals. The plantation sector has to evolve a programme framework, which focuses

on developing a healthy systen of market intelligence, market information and price

discovery. Producers, pr0cesso.s and traders should be enabled to take decisions that

minimize market related risks. This requires cooperative partnership involving the State

Government, the concerned Conlmodity Boards and the Plantation Associations.

5.3. Marine Products Exports

Marine products are one of the thrust sectors of export and the sth largest foreign

exchange earner for the country. Se3food exports has grown substantially from a mere Rs.

2.46 crores in the early fifties to Rs. 5917 crores equivalent to USD 1256 million in 2001.

This provides livelihood to millions of people both directly or indirectly. Among the various

shellfish and finfish available in India only products like shrimp, squid, cuttlefish, crab,

lobster and a few varieties of finfishes are processed and exported. Frozen shrimp is the

major item followed by frozen finfish, frozen cuttlefish and squid. In the early fifties our

export mainly comprised dried items like dried fish, dried shrimp, shark fins and these were

exported to the neighbouring countries like Sri Lanka, Myanmar, Singapore, Hong Kong

etc. However, the Indian seafood industry underwent rapid changes to produce canned and

frozen products. Currently the transition is from block frozen material to the production of

individually quick frozen and value added products.

The world demand for seafood is expected to grow due to the increasing demand for

protein rich food and change in prsference from red meat to white meat for health reasons.

Seafood has been acclaimed as on: of the fastest moving commodities in the world market

with high unit value. The world market for seafood has doubled within the last decade

reaching USD 58 billion. The shar: of seafood in our total export of all commodities is 3.12

per cent while our share on world teafood market is only 2.3 1 per cent.

The overseas markets are (expected to sell increasing quantities of convenience and

value-added seafood. The consumer in the importing countries prefers to have ready-to-eat

or ready-to-cook products. Since lndia is mostly exporting seafood in bulk form, there are

very good prospects for the export of value added products. lndia with vast potential areas of

both

- Table - 5.3: Export of Marine Products from India

brackish water and fresh water sources provides ample opportunity to increase the

production through aquaculture.

'UIV in USDIMT

1274.51 2338.24 3735.75 3846.23 3608.37 3986.13 3220.1 5 3193.84 3772.56 3730.54 3456.16 3233.82 3727.62 3399.46 3399.96 296 1.42

Year

1970 1975 1980 1985 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

The volume and value of e:cparts increased over the years, but unit value of marine

Source: Statistics of Mar~ne Products Exports, MPEDA, Cochin, 2003

exports as measured by USD vr~lue per metric tonne has not shown any significant

Qty.in MT

37175 534 12 74542 80588

133653 162930 191314 239918 301278 289524 353676 398977 313503 327205 421075 424320

improvement (Table - 5.3). Rather, it showed a declining trend in the late nineties. This

points out the need for value-addition in the export composition.

Val1 e Rs.Mn.

355.36 149.06

2188.76 3756.68 8184.11

12742.38 15814.36 22527.98 35655.19 33947.00 39800.16 46615.85 47095.46 47573.9 1 63965.65 59172.98

Table - 5.4: Item-wise Exports of Marine Products from India

Value Mn USD

47.38 124.89 278.47 309.96 482.27 649.46 616.06 766.26

1 136.60 1080.08 1222.36 1290.22 1168.62 1 112.32 1431.64 1256.59

(Quantity in MT; Value in Rs. Million) Items

) , 11998 11999 12000 12001

Total Marine items

Source: Statistics of Mwine Products Exports, MPEDA, Cochin, 2003

The item-wise exports show: that exports of shrimp constituted only 28.55 percent of

the total volume, but contributed r~early 69.29 percent of the value of the marine exports

(Table- 5.4).

Japan was the major buyer of marine items in 1996-97 with a share of 42.32 percent

of the total exports (Table - 5.5). But the share declined to just 22.60 percent by the year

2002-03. The share of the US market increased during the same period from 9.68 percent to

27.92 percent, thus becoming the 1:irgest buyer country-wise. Now aquaculture accounts for

about 70 percent of Indian seafootl exports, most of which is shrimp. The US has become

the top destination of seafood expot from India, which earlier Japan enjoyed.

Table- 5.5: Destination of Exports - Mar (Mill

USA 109 139 Japan 478 559 China 741 115 Spain 30 22

Source: Foreign Trade tk BOP.

14.31 15.27 47.02 41.52 4.96 1 7.42 3.13 3.38 3.22 3.89

CMIE, Mumbai

ne Products

:::; I :::: I :::: September, 2003

Although Kerala was the pioneer in marine product exports, its share is decreasing

year after year. The share of Kcrall in the total expart of marine products was more than 72

per cent in terms of value and 50 per cent in terms of quantity during the sixties. By 1980-

81, the share dropped to 38.56 perc:ent by quantity and 40.59 percent by value (Table - 5.6).

Table - 5.6: Export oi'Marine Products from Kerala and India (Qty in MT, Value Rs Million)

32.30 percent respectively. In thc year 2001-02, the share has further declined to 17.14

1980-8 1 1985-86 1990-9 1 199 1-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-0 1 200 1-02

percent in quantity and 15.96 percent in value. This is mainly due to the growth of culture

KERALA I Year

fisheries in states like Andhra Pradesh, Orissa, West Bengal, etc. Though the share of Kerala

INDIA

Source: Economic Rcview, State Planhing Board, Govt, of Kerala, (various issues)

In 1990-91, volume and \slue of marine exports from Kerala marked 36.58 and

is coming down, the volume of zxport from Kerala is generally on an increasing trend,

Q ~ Y Value

except in the recent past. The stagnation in capture fisheries has created raw material

Qty Value

i5591 8:3651

It894 19 1:'1820 208602 243960 307337 206277 3'78199 3:%5818 302934 3.13031 440473 424470

scarcity and affected the export growth from Kerala. Kerala contributes more than 40

29148 29580 50997

' 58743 49094 63809 74576 78896 92288 89366 7064 1 92 148 88852 72756

2348 3980 8933

13759 17674 25036 35752 3501 1 41213 46975 46268 51 167 64439 59570

percent in volume and about 50 p:rcent in value of the total cuttlefish exported from India;

953 1380 3 138 4445 4143 6215 8150 8569 9362 9480 8166

1 1469 10464 9505

40 percent in volume and 43 percmt in value of frozen squid; 25 percent in volume and 35

percent in value of frozen shrimp; I2 percent in volume and 1 1 percent in value of frozen

fish.

Kerala is estimated to ha-/e about 65000 hectares brackish water area suitable for

shrimp farming, of which about 1940 hectares are under scientific shrimp farming, 10200

hectares are under traditional shrimp-farming an 1850 hectares under improved traditional

shrimp farming. The rest of the area is yet to be developed. AS a result, per hectare

production is very low. By adopting scientific methods in the traditional farms and

developing unutilised areas for scientific farming, the production can be increased manifold.

If Kerala utilizes the potential brackish water area available for culture, it can improve its .-

share manifold.

The marine fish landings 3f Kerala comprise high value items like penaeid shrimp,

cephalopods (squid, cuttelfish anc. octopus) and various varieties of finfishes, crabs, lobsters

etc., which is around 21 percent of the total marine product landings in the country. Kerala,

with a large fresh water area in its rivers, reservoirs, tanks and ponds and vast brackish water

lakes and estuaries, provides an excellent opportunity for augmenting the production

through culture for export.

Out of the 120 EU-approved processing plants, 50 percent are located in Kerala.

Many of the processing units in Kerala are capable of processing different types of value

addedlready-to-cooweat products. One of the bottlenecks in the improvement of the quality

standard is in the area of unorganized pre-processing. The pre-processing centres located in

the Alleppey-Kollam belt are to be upgraded to meet international hygiene standards of

handling and to prevent quality degradation. With a vast potential for increasing the

production and facilities for rnulti-product processing, there are bright prospects for

augmenting the production of value added products and to increase exports from Kerala.

[n the world of seafood trade, India's competitive advantage is in four main marine

species -shrimps, squid and cuttlefish and low value ribbonfish. India is the second largest

producer of shrimp in the world, after China. This is when both capture shrimp and culture

shrimp are taken into account. In the quantunl of capture shrimp, according to F A 0 figures,

India has been exchanging first position with China frequently in the last two decades.

However, in aquaculture, lndia continues in the sixth position after Thailand at 250,000

tonnes per annum, Ecuador at 175,(100 tonnes per annum, lndonesia, China and Vietnam all

at approximately 150,000 tonnes per annum. India has been stagnating at below 100,000

tonnes per annum. The Supreme Court ban on aquaculture in the CRZ (Coastal Reclamation

Zone) and the killer white spot disease decelerated the growth of the culture production.

The entire production from seafood factories in lndia is exported. There exists no

national cold chain distribution system in lndia to sell seafood. Also, India, with the

exception of coastal areas, is not a seafood-consuming nation. On the other hand, the Asian

competitors like China, Thailand, lndonesia and Vietnam are seafood-consuming nations.

As these countries progress economically, they will cease to have exportable surplus and

will become net importing counties, particularly China. This trend is already evident.

India's seafood exports to China, Thailand and Vietnam are consistently on the increase.

Therefore, in the long term, lndia will always have-a net export surplus as far as seafood is

concerned.

Of late, there has been a major shift of the food processing industry and other labour

intensive industries in the advanced economies to developing economies from where the raw

material originates. This is particularly so in the seafood processing industry. The most of

the seafood processing industries i~ Japan, Europe and the US have shifted their processing

and manufacturing activities to China, Thailand, lndonesia and now Vietnam. lndia is

exporting raw material to China, Thailand and Vietnam for value addition and re-exports to

Japan, the EU and the US. Thus th: scope for value-addition in marine exports sector should

be further explored.

5.3.1. SPS and TBT Provisions

The recognition for ensuring quality and safety of food items in international trade

led to the establishment of the FAO/\YHO Codex Alimentarius Commission in 1962. Codex

Alimentarius means, literally, "food :ode." It is a collection of internationally adopted food

standards presented in a uniform manner. The standards aim at global protection of health of

and economic interests consumers, ind ensuring fair practices in the trade in food. These 4

international food standards, referred to as Codex standards, have been systematically

developed under the auspices of, ant1 adopted by, the Codex Alimentarius Commission. The

Codex includes provisions related t8, the hygiene and nutritional quality of food, including

microbiological standards, provisions for food additives, pesticide residues, contaminants,

labeling and presentation, and methods of analysis and sampling. The principal role of the

Codex Alimentarius Commission is to develop food standards that can be recommended to

governments for adoption. The Commission works to harmonize and coordinate all food

standards, whether undertaken by governmental or non-governmental organizations. Its

global charter is the protection of the health of consumers and the ensuring of fair practices

in the food trade. The entire work of Codex is related to quality control that is restricted to

consumer protection, health and trade. It has no direct role in such areas as environmental

protection, animal welfare or the protection of endangered .species unless such issues

directly affect food quality or safetj.

In the past, Codex standard:; concentrated upon end point inspection and tended to be

restrictive for meeting desired ob-ectives. The current approach is one of setting desired

objectives, and allowing scope for different approaches in achieving the desired end point.

This is indicated by the term "equivalency." It means that the measures taken to examine

issues need not be identical but rather the results that are obtained are indeed identical and

verifiable. Usually, food standards are subject to official government controls, particularly

for foods that move in interna.iona1 trade. The reason is that official government

certification is normally required as a condition of importation into market countries.

A key element in the dev6:lopment of Codex standards is the use of risk analysis

approach. This approach has two elements, namely assessment of risk, followed by the

developments of approaches to manage that risk. The basis of risk analysis methods should

be described, and such descriptior~ will he a fundamental part of all future standards. The

Commission has adopted guidelines for the application of the Hazard Analysis Critical

Control Point (HACCP) system. This is a tool to assess hazards and establish control

systems that focus on preventive ma~sures instead of relying primarily on end product

testing. The value of HACCP is that it can be applied throughout the food chain from the

primary producer to the final consumer. In addition to enhancing food safety, HACCP

allows a better use of resources 2nd a more timely response to problems. It also provides

assistance in the inspection and cc:rtification service provided by regulatory authorities. The

HACCP approach, along with the use of Good Manufacturing Practices (GMPs), is strongly

recognized and recommended by Codex.

The agreements of the W1'0 are designed to minimize restrictions to trade and they

address technical barriers to trade, including measures necessary to protect human health,

and certainly related to the tradc: of food. Measures necessary to protect human health,

which is one of the fundamental r(:asons for the existence of Codex standards, are addressed

in the "Sanitary and Phytosanit.iry Measures Agreement" (or SPS) text. The agreement

places an obligation on nations to ensure that SPS measures have a scientific justification, do

not arbitrarily discriminate between nations, are not applied in a manner that would

constitute a disguised restriction on trade, are not more restrictive to trade than is necessary

to provide the chosen appropriate level of protection, and are established and maintained in

an open and transparent manner. It is also presumed that a nation is considered complying

with obligations under the SPS text when its national measures conform to the standards

established by an appropriate internitional standard setting organization.

The Codex standards are very relevant to the evaluation of national measures under

the SPS text. The WTO text providss that to harmonize sanitary and phytosanitary measures

on as wide a basis as possible, ihe nations shall base their sanitary and phytosanitary

measures on international standard:, guidelines or recommendations, where they exist. With

the coming into force of the two agreements (SPS and TBT) the governments are being

compelled to avoid creation of ncn-tariff barriers-due. to their own ideas of food safety.

Countries are required to apply the same standards to imported food as they do to food

produced domestically. Thus discrimination against imported food is not permitted. The

Codex standards are regarded as a benchmark or yardstick of national requirements.

The WTO members are required to submit scientific justitication for food import

restrictions based on national regulations that are stricter than Codex standards. The future

direction of Codex with respect to quality control will continue to be influenced by the need

to satisfy the criteria established wi:hin the WTO SPS agreement, as well as with the revised

WTO Agreement on Technical Barriers to Trade (TBT). The measures that are necessary to

protect human health should be identified and distinguished from those measures that are

based on other criteria, such as nor,-protective quality standards. The latter in course would

be clearly identified as being of an zdvisory, non-mandatory nature.

If a country or a food processor follows the recommendations of Codex in preparing

or processing food, or in the inspection and control of food, it should result in the assurance

that such foods are safe and label e 3 properly and thus it results in the protection of the

consumer. The Director-General of the WHO has stated that "Stricter standards other than

Codex do not necessarily offer better health protection and may be used as non-tariff trade

barriers." The SPS and TBT agreements provide that food standards should rely on Codex as

the basis for trade and safety matters. Neither agreement makes reference to regional

standards.

With the SPS and TBT agreements becoming a reality, there remains a lot of work to

be done by the developing countries. The work to strengthen export control systems for food

must receive a high priority. Natioral systems of control must be improved and transparency

ensured. The Codex standards are based on scientific principles, and incorporate the

principles of risk analysis and proc':ss control. They are designed to permit flexibility in the

method of achieving the specified (quality standard, so that procedures and approaches may

be adopted that are appropriate to a range of production and processing methods.

HACCP can be applied to any food sectors and it has become a synonym for food

safety. The application of HACCP provides real time information on the process conditions

and enables the processors to take immediate corrective action in case of deviations before

the product leaves the facility. Tk~e adequacy and effectiveness of the HACCP system,

applied in the facility, evidenced by proper documentation could convince the consumers

about the process control leading t~ product safety. Due to the ban of Indian seafood for

exports to the European Union, the seafood industry had to initiate the implementation of

HACCP to meet the EU Regulaticn 91/493/EEC and Decision 941356lEEC. Regulations

were promulgated by the govt. and the regulators were geared up to meet the situation.

Subsequently the ban was lifted and the complying processors were cleared to export to EU.

Guidelines provided by the U.S National Advisory Committee on Microbiological

criteria for Foods (NACMCF, 1992) are considered as a reference document throughout the

world. The Codex Alimentarius Co~nmission (CAC) published a similar document in 1993,

which is also recognized as a basic guidance document. Major developed countries like the

USA, Canada and the EU have made HACCP mandatory for their domestic as well as

imported marine products. This mandatory implementation of HACCP exerts a lot of

pressure on the developing natiois. Various authors have elaborated on the host of

constraints experienced by the devt:loping countries in the implementation of the HACCP

system (Baskaran Nair, 1999).

For the operation of the I-IACCP system, a plan is to be developed for each

processing plant, which is specific for each unit. All potential hazards are to be analysed,

and the Critical Control Points are to be identified, critical limits are to be established and

laid down freque&y, these limits are to be monitored and records thereof to be maintained.

There is flexibility in establishing critical limits depending upon the type and nature of raw

material, the processing operation:; and nature of end use in the importing country, in

addition to the regulatory requiremc:nts of the importing countries. The exporters/processors

and the governmental agencies ir the exporting country, find it difficult to formulate

mandatory regulations on critical li~nits. The tolerance prescribed for various parameters by

various consumer countries vary in wide ranges. The processors cannot therefore establish

definite critical limits and plan their monitoring procedure. Even for processing inputs like

waterlice, there are variations among various countries and these variations create strong

constraint to the exporterlprocessor. International-Organizations should initiate action to

harmonize their requirements.

There may not be unanim ty of opinion with regard to identification of critical

control points. Therefore there can ]be difference of opinion among various technical experts

when verifying the HACCP plars. Regulatory agencies will have different view in this

regard.

For hazard analysis as ],art of the HACCP planning, marketing information,

epidemiological data, other scientific data on the harvesting centres, environmental effects

on the raw fish, information on the incidence of biotonim, presence of heavy metals,

pesticide residue, antibiotic residue etc are required as background information. Such

information may not be readily available to the industry. Sometimes information available

will be pertaining to developed c:ountries. Hazard analysis based on these data bears no

relation to the actual situation and hence may not be relevant. This is a major constraint in

the process of hazard analysis. R~:search institutions should be advised to undertake such -

studies on a priority basis.

For improvement of food safety and to formulate HACCP plan, risk analysis is very

essential. This is not done in mcst of the developing countries and where it is done, it

reaches only up-to a qualitative legel. The conventional'time X temperature control'cannot

assure 100 percent freedom from pathogens. Similarly organoleptic tests may not guarantee

freedom from all detectable hazards. Due to the inherent limitations of the random sampling

technique, randomly occurring conlaminations like residues cannot be assessed.

Risk analysis consists of ri:;k assessment, risk management and risk communication.

Risk assessment is a scientific technique for estimation of likelihood and magnitude of the

undesirable effect of food resulting from hazardous agents or unhygienic practices in

processing. Risk management is the planned developmelit and identification o f policy

options and implementation of food control programs developed form risk assessment. This

has to be done considering the relative benefits and costs involved. Even though there are

some publications giving guidelines for risk assessment of chemical hazards, there are no

such guidelines available for microbiological hazards or for abnormalities detectable for

organoleptic inspections. -

Even though HACCP concept is available for the last more than twenty years, active

implementation on a mandatory t~asis was introduced only recently almost all of a sudden.

Such sudden changes introduced could create problems to industry globally, in many ways.

In the case of developing natiors, lack of trained experts is a serious constraint in the

implementation of HACCP. W h e , ~ there is shortage of experts locally, the cost of training

will be very high and the cost of training devices become expensive. The industry especially

the smaller ones finds it difficult to meet the expense.

Raw materials and ingredients used in the processing and semi-finished and finished

products are stored and transportetj in storagesltransport systems not owned or controlled by

the main supplier of the food protluct. Finished frozen marine products may be transported

in containers, which are not cleaned and sanitized before storing frozen marine products.

This may cause cross contaminaticln. Temperature abuse during storage/transportation is not

accounted for systematically and decomposition and microbial multiplication can occur.

HACCP based standard operation procedures and standard sanitation operation procedures -

are to be strictly introduced.

The government should [provide conclusive infrastructure, which is the basic

necessity for development and implementation of HACCP. The regulatory agencies should

make necessary arrangements for ::uiding the industry in implementation of HACCP. The

seafood exporters of India are to develop necessary infrastructure required for the

establishment of HACCP-based seafood quality and safety management system.

The ban on Indian seafootl import by the US way back in 1997 had forced the

industry to upgrade their factories and raise the levels to meet international standards. As a

result, the country now has 120 E J- approved seafood processing units. This has given a

major boost to the industry, which accounted for exports worth Rs. 6,800 crores during

2002-03. Also the industry was ge;ved up to meet all the hygiene standards. However, the

ever-changing EU standards posed problems to the industry.

5.3.2. Sea Turtles and Import Ban

The US imposed ban on shrimp imports in 1996 on grounds that trawling for shrimp

by mechanical means were adversely affecting certain varieties of sea turtles. The ban

applied to other countries such as Pakistan, Malaysia and Thailand. lndia along with these

countries approached the DSB to set up a panel to examine the WTO-inconsistent law on

shrimp exports. The panel gave it:; ruling in their favour after which the US moved the

appellate body. The latter decided that the DSB should request the US to bring its measure

in conformity with the WTO reg~~lations. Thereafter, the US revised its guidelines on

implementing Section 609 of public: law that placed a ban on shrimp imports from May I ,

1996. The law required the use of TEDs in shrimp trawls in order to prevent incidental catch

of sea turtles. Further, it provided that all shrimp and shrimp products entering the US

carried a declaration that they were harvested under conditions that did not adversely affect

sea turtles. The government author zed MPEDA to issue a declaration that shrimps being

exported to the US had been sourced from aquaculture or harvested by using non-

mechanical or traditional means.

5.3.3. Anti-dumping Duty on Shrimp

Now, there is the threat of the US slapping anti-dumping duty on shrimp imports. In

December 2004, the US Commerce .~Tpartment has imposed a final anti-dumping duty of an

average 9.45 percent on shrimp imports from India. It is lower than the 14.2 percent duty

announced in its preliminary determination in the antidumping investigation. The imposition

of duty will be subject to final ruling of the US International Trade Commission. Also, the

US imposed anti-dumping duties on Brazil, Ecuador and Thailand.

There were allegations from the US seafood industry that several countries including

India are dumping seafood, mainly shrimps in the US. he safeguard mechanism of the

WTO permits imposition of anti-duriping duty on shrimp imports into the US, if it is proved

that export prices are lower than the domestic cost of production of the export items. The

action taken by the Southern Shrimp Alliance and the Louisana Shrimp Alliance o f the US,

the representatives of the US shrimp producing industry, against 12 shrimp exporting

countries including India was one of biggest challenges the industry ever faced. The

proposed anti-dumping and countervailing duties will affect even new companies. It will be

examined whether the imports to the US materially injured the domestic industry. This

would be followed by inspection of farms and fishing harbours and also the factories to

verify data and work out whether the data justified imposition of anti-dumping duty. The

duty rates would be imposed individually for each of the company inspected, and their

weighted average duty would be irnposed on all other firms. It is alleged that the rampant

unemployment in coastal communities in the US is owing to cheap shrimp imports from

counties such as India. But India was mainly expo8ing 'tiger shrimps' which are not found

in the US and in unprocessed frozen form. In fact, 80 percent of shrimp consumption in the

US was met through imports of unprocessed Indian shrimps that generated about one million

jobs in the food processing industry there. Gupta (2003) has analysed the WTO Anti-

dumping Agreement from a developing country perspective. There are a large number of

loopholes in the different provisions of the Anti-dumping Agreement with substantial

negative consequences on the d:veloping countries. The process o f globalisation has

received some setback as trade disputes over anti-dumping have increased. Antidumping

measures are being applied frequently to meet the pressures for protection and represent a

systemic threat to the WTO system.

There is a need to increase the area under cultivation for culture. There is the need to

allow for import of raw material for processing and re-export. Import of raw material is

important, as the industry is operating on an average below 50 percent capacity utilization.

The apprehension of the producer: that import will affect domestic prices should be

removed and government should init ate steps for import for export only. There is a need to

have an international food-processinl: zone. A separate zone for the industry would give it a

special status like that of the knitwear industry in Tirupur. - With the expected commissioning

of seafood-processing park at Aroor, in Alleppey District, there will be pre-processing units

and facilities for enhancement in val~e-chain, and a state-of -the-art laboratory to meet EU

and the US norms.

Bhatta et. a1.(2003), have assessed the long-term trend in marine fish production in

Kamataka and has found a falling ttend in production. The decline is not just a seasonal

fluctuation but also an indication of fish famine in terms of both production and

accessibility.

5.4. Spices Exports

lndia is known to be the 1arg:st producer, consumer and exporter of spices. Spices

sector is one of the key areas in wh~ch India has an inherent strength to dominate global

markets. Recorded history elucidates the extreme fascination of the rest of the world for the

fabled wealth of lndia -the variety cf spices. Out of 109 spices listed by the ISO, only 63

are grown in the country. Commerc al cultivation is limited to about a dozen of spices,

which attained importance in the internal and international markets. The international spice

scenario depicts a quantum leap over the past decade to more than 4.50 million tones, valued

at US$ 1,500 million. India's share of the world spices trade is estimated as 45-50 per cent

by volume and 25 per cent by value. The present annual production of spices in the country

is 3.0 million tonnes from over 2.5 million hectares. Nearly 90 percent of the spices

produced in India is absorbed in th,: domestic market and only 10 per cent is exported to

over 150 countries. About 8.5 percent of India's export earnings from agricultural and allied

products come from spices, which constitute 1.24 percent of the total export earnings during

The major issue is the low productivity of spices in the country. In black pepper, our

national average is only 316 kg /ha whereas in Thailand, it is 3352 kglha. So also, .-

Guatemala is producing cardamom at the rate of 250 kg/ha as compared to 135 kg/ha in

India. Ginger would be 3391 kg/ha in India as against 8 ,) 16 kglha in Indonesia. This is

owing to small size of holdings a7d also due to a sizable extent of cultivation as home

gardens.

Table- 5.7: Area and Production of Important Spices in India (1999-00)

Black pepper Cardamom (small) Chilli Ginger Turmeric Coriander Cumin Garlic Other seed spices Tree spices Others Total

Source: Directorate of Arecanut and Spices Development, Calicut, 2001

Area (000 ha) 192.3 72.4

915.2 77.6

161.3 546.5 264.0 1 14.4 84.7 28.4 43.2

2500.0

Production (000 t)

58.3 9.3

1018.0 263.2 653.2 290.0 108.7 495.3

99.4 1 1 . 1 16.7

3023.2

Table - 5.8: Exoort of Total Spices from India

1 2002-03 1 264107 1 208671 1 79.01 1 Source: Spice Statistics, Spices Board, Cochin

Though the volume, value of spice exports in rupee terns and unit value in rupee

terms have shown continuous increase over the years, the value of exports in USD terms * 5.q

shows a declining trend (Table -- 5.81). There is an increasing share of bulk spices like

chillies in trade composition, and declining share of high value spices like pepper.

Table -5.9: Destination of Soices Exoorts (USD Mn.)

97-98 98-99 99-00 00-0 1 0 1-02 02-03 World 380 388 408 355 315 334

115 123 134 76 73 78 24 25 25 25 24 24

Japan 18 19 19 23 23 21 Sri Lanka 4 6 1 1 13 14 17 Germany % Share USA UK Japan Sri Lanka Germany

I 1 I I I I 1 I Source: Foreil:n Trade & BOP, CMIE, Mumbai, 2003

Though the US is the largest expcrt destination, the share of the US market has declined

over the years form 32.58 percent t~ 23.26 percent. This has affected the export prospects of

spices. This is also indicative of di\,ersification of export destinations.

5.4.1. Pepper Exports

Kerala retains the lead in black pepper production in the country contributing 96

percent of the area and 97 percent of production. The black pepper area increased from 0.8

lakh hectares in 1950-51 to 2.20 ,akh hectares in 2001-02. Similarly, production increased

from 20,500 tonnes in 1950-51 to 80,000 tonnes in 2001-02 , mainly due to lucrative prices

that prevailed in the domestic ant1 international markets. The annual growth rates for area,

production and productivity of black pepper for the last decade were 1.30, 3.30, and 1.50 per

- cent respectively.

Table - 5.10: Production and Export of Pepper

I Year I Area 1 Production 1 Exports I Exports I U.V. 1 MGI Price 1 Hectare

109290 125120 173430 184200 189390 190990 193270 198870 180260 181530 189800 214910 2 18700 220620

value Rs. Lacs

3895 17248 10239 743 1 7893

18909 23664 19629 41231 49635 63479 88528 38081 20368

Rs/KG 1 Ouote at NY 1

[ 2002-03 1 ------ I -- .--- 1 216091 17887 / 82.78 / 96.00 Source: Spice Statistics, Sp ces Board, Cochin, 2003

There was continuous increase in area under cultivation and production of black

pepper. (Table - 5.10) The export of Indian pepper is highly influenced by the oscillating ~-

prices, which was more pronounce(i recently. The export behaviour of the commodity shows

a fluctuating trend with peak performance in the years 1993-94, 1996-97 and 1999-00. A

declining trend is visible in volun~e and value of exports. The unit export value in rupee

terms and New York prices of bla~:k pepper of Indian variety (MGI) show fluctuating trend. / tb

During the year 1999-00, the Nevi York price reached the peak price of USD 2.57, which 1

nose-dived to USD 96 cents in ..he year 2002-03. Sandhu (1993) has done econometric

studies on India's export share ol'black pepper in the world trade and found that lndia is

being priced out of the world markets by countries like Malaysia, Brazil, Indonesia and

Vietnam.

The indigenous pepper prizes have declined precipitously and is hovering around Rs

65,000 a tonne. Such low prices ought to have encouraged larger exports from the country.

But pepper exports from lndia have declined steadily in recent years and a significant part of

exports is pepper imported duty-free against export obligation. During 2002-03, pepper

exports were 21,609 tonnes and imports 15,000 tonnes. Much of the import was for export

purposes; thus only 5,000 tonnes of indigenous production were exported. This is less than

10 percent of domestic output f ~ r the year, while historically about 20 to 30 percent of

domestic output is exported.

Other producers such as Vietnam have overtaken lndia in pepper production and -

export. The once-famous Indian black pepper today stands out-priced. Vietnam is in a

position to produce and export at low prices, and the quality 'of the origin is acceptable to

international buyers. The domestic pepper grower should be equipped to face competition.

Artificial insulation from compelition by tariff and non-tariff barriers may not provide any

lasting solution. Instead, programmes to raise production and productivity are needed. If

Vietnam, the present largest producer of black pepper maintains the current rate of growth in

production, it may take over the supreme position enjoyed by India. 'The market recognizes

and trades not specific origins but specitic quality parameters. Instead of resting on past

laurels, all stakeholders must come together to resurrect the Indian black pepper' (Madan

and Selvam, 2001).

5.4.2. Cardamom Exports

Cardamom, the "Queen of spices" enjoys a premium preference in the international

market and is relished for its distinct enriching properties. The data reveals that there was

decline in the area under cultivaiion during the last two decades without impacting on the

increasing production trends. The unit value of export realisation showed an increasing trend

for the period from 1980-8 1 to 2002-03. -

Table - 5.11: Production and Export of Cardamom (Small)

The quantity of exports showed a fluctuating behaviour, which depended on the

1 2002-03 / ----

production levels and prices of t,Ie competitor, Guatemala. Record price in cardamom was

realized during 2002-03, which wasas high as Rs. 6801kg during January 2002, largely on

Exports Qty, MT

2345 3272 400 544 190 387 257 527 226 370 476 676

1545 1031

Exports Value, Rs. Las

3475 5345 1086 1557 750

1454 762

1296 869

1266 2525 3270 8486 6167

Year

1980-81 1985-86 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02

Source: Spice Statistics, Spices Board, Cochin, 2003 ----- 682 / 4707 1 690.24 1 16.76 1

'U.V Rs./Kg

148.20 163.39 271.65 286.29 395.04 375.93 296.74 246.10 384.81 342.37 530.52 483.83 549.26 598.23

Area Hectare

93950 I00000 81554 81845 82392 82960 8365 1 83802 73593 72444 72 135 72429 72320 72663

Average Price Middle East Indian Extra bold $/Kg.

- - -

16.22 15.38 15.93 17.39 9.58

10.3 1 12.02 13.85 13.96 16.14 16.56

Productio~~ Qty, MT

4400 4700 4750 5000 4250 6600 7000 7900 6625 7900 7170 9330

10480 11365

account of sharp production decl ne in Guatemala. Thereafter, there was a decline in the

prices.

Cardamom, also known as the green gold, is mainly cultivated in ldukki district.

Now the crop faces many problems such as tough international competition, instability in

prices, increase in cost of cultivti.ion, diseases and pests, changes in climate of the regions

and overall lower productivity ox~ing to these factors. In 1998-99 the prices soared to Rs

1,000 per kg. This led to an increase in production due to the entry of a large number of

small farmers. There was incr~zse in production from 3450 MT to 13500 MT and

subsequently, decline in prices Indian cardamom fetched higher prices compared to

cardamom from Guatemala. The recent decline in price to Rs. 400 per kg is attributed to

imports of cardamom owing to import liberalisation.

5.4.3. Exports of Oils and Oleo~.esins of Spices

Table - 5.12: Exports of Oils and Oleoresins of Spices

-- Year

-- 1980-8 I 1985-16 1990-511 199 1-92 1992-93 1993-04 1994-!)5 1995-06 1996-07 1997-08 1998-99 1999-00 2000-0 1 200 1-02

Exvorts

402 892

1392 1270 1355 1672 1912 2358 2419 2752 3465 3860 4510 4839

pice Statis

Exvorts I U.V

39094 1 807.90 1 ics, Spices Board, Cochin, 2003

Exports of value-added spices have shown a substantial growth in recent years.

Exports of oils and oleoresins of spices showed a continuous increase from 1980-81. The

unit value realized is much higher :ompared to raw spices. For increasing exports of value- . added spices, the exporters will have to develop products that could be sold through the

hyperlsuper market chains in the CIS. The products have to be sold under an indian Spices

Brand in these markets. The initisl investments might be slightly on the upper side as the

slotting fees in the US hyper1supt:r markets are hTgh. Investments with subsidy should be

made available for high-tech facilities such as super critical e-xtraction, steam sterilization,

cryo-grinding, packaging developlnent, quality labs etc. This will enable the industry to get

a better value realization. The p.oducts would include vanilla and herbal spices such as

rosemary, thyme and oregano. Przsently, cured vanilla beans were being exported and this

has to change to the export of van~lla extracts.

The spice farmers are in ,.he habit of selling the produce in the primary form. With

respect to export also, about 85-90 percent go out as primary produce. There exists good

scope for value added products in the European and American markets. Presently, a major

share of value-added products arc: exported to the Middle East where the price realized is not

much higher than that in the domestic market. The first step is to penetrate into super market

chains with diversified high quality value added products for substantial gains. The global

demand for value added spice:: is on the increase. Convenience in consumption is the

characterization of new market s.nd shift towards quick food habit placed enormous demand -

in value added spices. The share of value added spices export from India is very less, mainly

due to lack of adequate processing facilities. Essential oils and oleoresins are the major

value added spice products expcrted from India, accounting for I6 percent of the total export

earnings from spices. The ready-to-use mixture segment has also exhibited a very fast

growth.

5.4.4. The WTO Agreements ant1 Spices Exports

The Agreements on Agriculture, SPS and TBT, TRIPS, Safeguards and SCM will

have implications on the spice trade. The Agreement on Agriculture lays the foundation for

reducing distortions in agricultutal trade and for the gradual establishment of a fair and

market-oriented agricultural trading system. "However, as the tariffs on spices and spice

products in the pre-Uruguay Round period have been low and most spice-producing

countries have been exporting spices under special preferential arrangements (such as

generalized system of preference; or GSP), the impact of the Agreement on Agriculture on

market access for spices may not Je significant" (ITC, et. a1.1996).

Commitments to reduce domestic support, - quantified as the total Aggregate

Measurement of Support or Total AMS, over specified periods are required. Domestic

support measures with minimal impact on trade (green box measures) are excluded from

reduction commitments. These measures include general government services, for example,

in the areas of research, disease control, infrastructure, food security etc. The spice-

producing developing countries will be able to maintain subsidies under the de minimis rule.

The developing countries can have recourse to subsidies to reduce the cost of marketing

exports of agricultural products and the costs of internal transport and freight charges on

export shipments.

The SPS Agreements corrcern the application of measures to protect human, animal

or plant life or health. Sanitary I human and animal health) and phytosanitary (plant health)

measures are applied to domestic products and products from other countries. But at the

same time, the governments should be guided by the best international standards and

practices. But as long as there is no harmonization in the various standards followed by the

governments, there will not be an:{ uniform regulations with regard quality of products. This

will lead to unwarranted burden on the exporters of the developing countries. The differing

standards and its varying degree; of application by - the developed countries will pose as

NTBs (Non Tariff Barriers) in int1:rnational trade.

As a result of WTO regims, quality competitiveness has emerged as the prime mover

of international food marketing. Indian food products are increasingly facing ban in the

export markets, with the EU banning Indian chilly powder due to adulteration with

carcinogenic dyes. Chilly powder from India used in red pesto and spicy sauce has been

banned by Italy also, as it was found adulterated with Sudan I, a red chemical dye. There are

instances of reported presence of pesticide residues in Indian spice exports to Australia.

(Madan and Selvam, 2001).

lndian food products, spices in particular, have come in for negative publicity in the

world markets following detectic~n of unacceptable levels of pesticide residue, aflaroxin (a

carcinogenic mould) (George and Mehta, 2003). There should be attempts to put in place

systems and procedures to ensure strict compliance with new standards.

It is necessary to first recc~gnize the nature and cause of contamination, the impact on

consumer health and measures to eliminate unsafe raw material and additives from getting

into the food chain. Efforts to cetect and eliminate unsafe elements must begin from the

farm itself. Supply of quality inputs, sound agronomic practices, adoption of appropriate

pre- and post-harvest technology including scientific storage and transportation must be

ensured. However, in India, fcmod safety and hygiene have never been a priority for

producers, processors and policyrnakers. Food quality standards are not strictly implemented

owing to lax administration of f3od laws. However, the issue of food safety in spices for

- exports demands change in attitude of traders and a transformation in trading system itself.

Ideally, spice intermediaries and e:cporters should have access to capital, technology and

market information. Corporates ant1 large traders have to establish backward linkages with

primary producers. It is urgently required to formulate a long-term view of quality-related

issues including investment in rural infrastructure and education of farmers.

The health technologies like critical fluxidized extraction using hydroflurocarbon,

super critical extraction technologies, pasteurization, gas fumigation using ethylene oxide,

gamma radiation, co-extrusion h e ~ t treatment, heat treatment on un-modified product etc.

are only marginally employed at present. The introduction of safer products should be done

without sacrificing the objective o'efficiency and competitiveness.

Organic spices are gaining great momentum in the world market. Organic cultivation

being more expensive, the growc,rs should get premium price for the produce. In January

1993, the European Union Council Regulation pertaining to production and

commercialisation of organic products came into existence. The Spices Board of India has --

already launched a number of prc'grammes to create awareness for organic spices production

in the country. The Board has Itlunched a scheme to assist group of farmers 1 societies in

getting organic certification from1 international agencies by providing 50 percent of the cost

of inspection and certification chxges.

5.4.8. TRIPS and Spices

Kerala has applied for international patents for four of its commodities - Malabar

pepper, Cochin ginger, Alleppcy tinger turmeric and Tellichcrry Extra Green Bold (EGB)

cardamom. Specific qualities based on geographical indicators are definable in the

international patenting parlance. The spices industry is entering into a new era of diversified

uses of spices, particularly mfdicinal and neutraceuticals. The antioxidant properties of

curcumin from turmeric, which prevent the entry of cancer is well documented. The

phenomenal growth of curcumin exported eloquently proves the acceptance of such

functional properties in addition to its wider use as food colorant. Piperine from black

pepper is a potent inhibitor of d r ~ g metabolism. It acts as a bioavailability enhancer.

Bioperine is a pharmaceutical form~lation of piperine in the US. Exploration of medicinal

and neutraceutical properties of cur traditional spices will pave a long way in the

development of lndian spice industr).

"While NTB for spices is negligible, the problem out of SPS is more serious. So, an

effective strategy for competing in the international market will be the emphasis on post-

harvest management in respect of export oriented spice production centres and the

promotion of agro-processing industries to add value to raw spices. In order to escape from

the stringent SPS measures, emphasis-should be given for production of organic spices and

their export" (Madan and Selvam ,2001). Quality is the key to spices. The motto should be

'clean spices' rather than 'cleaned zpices'.

5.4.6. Sri Lanka Trade Pact and lluty-free Import of Spices

The duty-free impon of spices will affect not only export market but also the

domestic market of spices producc:d in Kerala. In the face of stiff competition in the global

markets, it was the vast domestic market that salvaged the spices economy. Even though the

applied tariff for,pepper under M'TO regime is 70 percent, under free trade pact with Sri

Lanka the duty fixed is only 10 percent. This would lead to diversion of import of pepper

from other countries like Vietnani through Sri Lanka. The Spices Board had recommcndcd

that Sri Lankan import of pepper should be limited to 25 percent of total domestic

production of pepper in that country. But this has not been made mandatory. The Indian

pepper is priced at $1750 per tonne, whereas the imported pepper is priced at $1400-1500

per tonne. There was substantial inzrease in import of spices from Sri Lanka after the year

Table - 5.13: Imoort of S ~ i c e s into India -

Sri Lanka

Indonesia

Source: Foreign Trade (% BOP, CMIE, Mumbai, Sept. 2003

Price competition in the glol,al market is another major challenge for the Indian spice

industry. A realistic price reductioi to offer healthy competition to our major competitors

like Vietnam (for black pepper), Guatemala (for cardamom) etc. should be seriously thought

of. Many of the Indian spices are much valued in the world market because of their intrinsic

qualities. However, import of low-grade spices to India and re-export under the Indian label

should be reconsidered. Production of organic spices should be encouraged so as to cash in

on the growing demand for organic produce in the world market. The huge expense involved

in the process of certification need to be addressed. Broad-basing the spices export basket by

value addition and product diversification should be implemented.

5.5. Natural Rubber (NR)

The State of Kerala and the Kanyakumari District of Tamil Nadu together constitute -

the traditional rubber-growing regi'm in the country. The traditional region accounted for as

much as 88 percent of the total art:a of 562,670 hectares under the crop in 2000-01. Small

holding sector, comprising 9.92 1;1kIi units with an average size less than half a hectare,

dominates the production sector by sharing as much as 88 percent of the area and

production. India's productivity of NR, measured in terms of average yield from unit

hectare, is the highest among the riajor rubber producing countries. Rubber consumption is

characterized by sectoral concentration dominated by the automotive tyre-manufacturing

sector which accounts for as much as 45 percent of the total consumption in the country.

Indian rubber plantation industry was export-oriented until the late 1930s.

Table - 5.14: Import and Export of Natural Rubber Dry - India (Quantity MT, Value 1000 USD)

Thereafter, owing to the expansion of rubber goods manufacturing industry in the country,

domestic consumption of NR increased rapidly to the extent of outstripping the production

Export Value 1 1 I I 3

20 41 77

815 1546 627 511 360 312

2456 2937

25619

and making the country a net impc'rter since 1947. However, there have been occasions

Source: http:// apps fao.org

Export Qty. 12 20

2 7

25 80

634 749 364 372 408 409

345 1 4936

3678 1

when production outstripped consu~nptio~i and NR became surplus. Owing to the availability

ltr~port Value 32867 37500 38350

9320 15746 13740 4823

56741 15149 14876 12248 929 1 3401

28 180 18371

Year 1881 1885 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 200 1 2002

of surplus NR in the domestic market, coupled wzh depressed conditions that prevailed in

Import Qty 34060 34300 46293 11309 15723 15499 4455

3 3 624 10543 141 18 16361 13802 4326

44238 23782

the international market, the Indian 1dR market did not register any marked recovery during

2000-01. To arrest the fall in prices, the State Trading Corporation (STC) procured about

55,000 tonnes of NR in four phases from August 1997 to October 2001 under the direction

of the government. Part of the rubb(:r purchased by STC in the first phase of procurement

and the entire quantity purchased s~~bsequently were sold to Advance License Holders at

international prices.

- In order to stabilize the market, the Government on September 12, 2001 notified minimum

prices for the two predominantly traded grades of rubber in India, namely RSS 4 and RSS 5

Table-5.15: Consumption, Export, Import and Stock of NR in India (Qty. in. MT)

8.8 1994-95 485,850 7.9 1,961 8,093 69,550 1995-96 525,465 8.2 1,130 51,635 103,190 1996-97 561,765 6.9 1,598 19,770 107,3 I0 1997-98 571,820 1.8 1,415 32,070 147,300 1998-99 591,545 3.4 1,840 29,534 187,965 1999-00 628,110 6.2 5,989 20,207 192,570

0.5 13,356 8,572 183,900 Source: Survey of Indian Agriculture, The Hindu, 2002

5.5.1. Non-Inclusion as Agricultural Commodity

Closing Stock

Though plantation crops like tea, coffee, cardamom and pepper have been

Year

categorized as agricultural commodities and come under the Agreement on Agriculture

Export Consumption Quantity Annual

(AoA) of the WTO, natural rubber is classified as an industrial raw material and is not

Import

covered by the Agreement on Agriculture. There are several disadvantages of rubber being

excluded from the Agreement on .\griculture. The most important dimension of this is the

bound rate, which is relatively hi[,h for the commodities covered under the Agreement on

Agriculture. While the bound ratt: for tea is 150 percent and for coffee and pepper 100

percent, that for natural rubber is as low as 25 percent. In its initial negotiating proposals

submitted to the WTO, the Government has stressed the need for rationalizing the product

coverage of the Agreement by including the primary agricultural commodities including

natural rubber. The issue was discussed at the Ministerial Conference of the WTO in Doha.

The Rubber Board has also sought the support of _other NR producing countries by utilizing

the platform of the Association of Natural Rubber Producing Countries (ANRPC), in which

India is a member.

5.5.2. Removal of Quantitative Restrictions

Natural rubber has been enjoying several protective measures and this has

contributed significantly to the present level of production. Rubber was under the negative

list of restricted items. The demand-supply - gap as a result of restrictions on import could be

maintained steadily to a great extent. Considering the fall in prices as a result of over supply,

imports were restricted through all the routes. With the removal o f Quantitative Restrictions

on import, effected on April 1, 2001, NR can be imported by paying the prevailing duties.

At present, rubber can be freely irlported by paying the prescribed duties, which at present

is 25 percent (which is the bound rate also) and in addition a special additional duty of 4

percent. However, the government has taken several non-tariff measures aimed at protecting

the domestic rubber sector considering its socio-economic significance. Import has been

permitted only through designated ports facilitating better monitoring, strict compliance of

BIS standards besides continuin:: the ban on import o f rubber under Advance License,

thereby preventing duty free import of rubber into the country. In addition, the government

has raised the import duty for latex that will prevent import of latex, a measure that will

have impact in the market in the 13ng run.

With the removal of quantitative restrictions on import of natural rubber, the major

challenge before the industry is to face the emerging global competition. NR producers have

to compete for export, and also withstand possible imports at competitive prices. Thc NR

growers started making forays i ito the external markets and imports are also taking place

simultaneously. "This is a tellirg example of the QR free regime benefiting the domestic

growers as well as the grower ndustry on a win-win basis" (Saptarishi, 2003). The Price

Stabilization Fund scheme (PSF) has been put into operation, and the growers also

contribute from their earnings towards the corpus of funds, which will start yielding returns

and the subscribers will benefit from the yields.

5.6. Tea Exports

lndia is the largest producer of tea in the world. It accounts for 20 percent of the total

area under tea, 28 percent of worltl production, 22 percent of global tea consumption and 15

percent of the global tea exports. The tea industry provides direct employment for one

million workers of which a sizc:able number are women. lndia is the world's largest

consumer of tea, consuming over 600 million kg annually. India is only the 4'h largest -

exporter in the world.

Table - 5.16: A Brief Profile of Tea Industry

Production in m.kg. Exports in m.kg. % of exports over production Domestic consumption in m.kg. Imports in m.kg. World production in m.kg India's share in world production (%) World demand in m.kg. World exports in m.kg.

Export performance has declined in recent times. Since 1998, the export volume

I India's share in g l ~ b a i e x ~ o r t s (%)

has dropped at a CAGR (Compound Annual Growth Rate) of -1 percent and export value

16.22 1 15.30 1 15.63

dropped at a CAGR of -9 percent. Until 1987-88, tea was the most significant export item

Source: Survey of Indian Agriculture, The I-lindu, Chennai, 2002

from India in agriculture. By accounting for 20.7 percent, it ranked number one among

agricultural exports, but thereafter it3tarted declining

Table - 5.17: Production and Exports of Tea - World 1 India - (Quantity 1000MT Value Million USD)

Year 1 World 1 Indian / World / Indian / World 1 Indian I

2002 1 3141 1 847 Source: http: llapps.fao.org

Exports Quantity

984 1083 1228 1196 1125 1223 1061 1168 1214 1316 1422 1368 1489 1447 1360

Exports Quantity

239 208 198 215 166 153 151 158 138 191 202 178 20 1 178 182

Exports Exports vaiue I value I

The share of India's tea production in the total global tea production declined from

30 percent to 26 percent from the period from 1980 to 2002. The share of lndian exports in

the global exports declined from 24 percent to nearly half of that in the year 2002.

Table -5.18: Destination of Tea Exwrts

UAE

German 20 ( 181 20 I

Source: Foreign Trad': & BOP, CMIE:Mumbai, Sept.2003

The share of Russia as our major ttuyer declined over time, and this is one of the reasons for

poor export performance.

Tea is grown in 15 states and the largest producers are Assam (50.7 percent), West

Bengal (22.1 percent), Tamil Natlu (15.9 percent) and Kerala (8.3 percent). The cost of

production is high in India compar:d to other competitors. The average cost of production is

US$ 1.62 for North lndian tea and US$ 1.48 for South lndian tea. The largest cost

component is labour accounting fcs 43 to 50 percent. "As a long-term measure, lndian tea

industry has to take drastic measures to reduce costs of production in the tea plantations at

least to the level that lndian tea cal compete with Sri Lankan and Kenyan tea in the highly

competitive international market". (Unneenkutty, 2000b).

The global tea consumption is lagging behind supply resulting in an over supply. -

World supply has grown at a CAGll of over three percent since 1995. World absorption has

grown at a CAGR of 2.5 percent in the same period leading to'a worldwide softening of tea

prices. Reduced price realizations are threatening the profitability of producers the world

over. With depressed prices and ir~creasing cost of production, the industry is witnessing

significant losses. India's costs of production being very high and uncompetitive, makes it

vulnerable to low cost competitors like Indonesia, China and Vietnam. Kenya, India's main

competitor in CTC teas has a 30 percent lower cost base. Declining exports and increasing

production place tremendous pressure on prices leading to continued loss in profitability and

loss in foreign exchange earnings. The health of the industry has an immediate socio-

economic impact in the remotely lclcated tea growing areas of the country. Tea plantation

workers in Kerala are facing starvation, following the closing down of several small and

medium companies. The reasons are attributed to unrestricted imports and a sharp fall in

international prices of tea. The mar<et-driven liberalization in the sector has led to poverty,

malnourishment and disillusionmenl among the workers.

Certain broad strategies havr: been worked out to improve tea industry's performance

in the international market. These include a serious effort towards improving the quality

image of Indian tea, with a thrust cn orthodox production. Special incentive schemes were

launched to encourage conversion to orthodox manufacture and for correction of imbalances

in manufacturing capabilities.

The removal of quantitative restrictions and the implementation of Indo-Sri Lankan

Free Trade Agreement have led to import of plantation crops including tea at. low import

duties. The Commerce Ministry has put in place an inspection mechanism at the ports of -

entry to ensure that import of all food items including tea would have to conform to

standards laid down under the PFA (Prevention of Food Adulteration Act). This would serve

as a deterrent against dumping of sr~b-standard tea within India or blending of sub-standard

tea of other origin and passing off as Indian tea

Table - 5.19: Import of Tea into India USD Million

Vietnam 0.13 0.90 1.52 7.35 I Indonesia 1 1.91 1 4.07 1 5.09 1 4.75 I ( Sri Lanka I 2.02 1 1.75 1 2.45 1 0.97 1

Source: BOP & Foreign Trade, CMIE, Mumbai, 2003

The tea sector needs strategi~s for both supply and demand. Pruning high production

costs, improving quality, educating growcrs aboul uppropriatc practices and ensuring easy

marketability are issues to be attended to

5.6.1. NTBs on Tea Exports -

The EU has placed a spate cf health regulations as regards tea imports into the EU.

The issue is related to use of pesticides and other plant protection materials in tea

plantations. It is clarified that, wi:h respect to MRLs (Maximum Residue Levels), the

directive of the EU Council that deals with tea - 90/642/EEC as amended up to directive

2002/100/EC of 2002 will prevail :md imports into the EU will remain subject to MRLs

stipulated therein. There is increasilg insistence from the importers for conformity to the

prevailing MRLs. There is also the possibility of re-setting MRLs, which causes hardship to

the industry. The German Tea Assoi:iation has banned certain sensitive items like ethion. It

is conveyed to the EU officials thlt field data from the tea producing countries, which

represent wide diversity of agri-climatic zones, must be given due consideration before

fixing MRLs. It has been clarifiecl that frequent changes in MRLs disrupt agricultural

practices and that there should be harmonization of MRLs with other standards such as

CODEX in the interests of seamless global trade. But the EC authorities were not receptive

to the proposal for alignment with CODEX. In their views, CODEX was based on "too little

data". They agreed with India's pos,tion for documenting the pesticide usage conditions in

the tea growing countries. The EC would be open to rccciving data in a structured format

from third countries for formulating its position on tea-related MRLs.

5.7. Coffee Exports

India' share of global coffee production was 1 1 .SO percent i n 1980. The same level is

being maintained in the year 2002. H~wever, share of exports increased from 8.14 percent

Table - 5.20: Product io~~ and Ex (Quant

m i a n Production Production

1 2002 1 7668 1 847 Source: http: Napps.fac .org

orts of Coff y 1 OOOMT, '

World Exports

e Green -World 1 India 'alue Million USD) Indian I Indian /

to 12.13 percent. Though there was increase in the volume of exports with certain

fluctuations, the FA0 data on value 3f exports in USD terms show steady decline, indicating

fall in coffee prices.

Table - 5.21: Destination of Coffee Exoorts

Russia 86 Italy 52 Germany 52 Belgium 10 Spain 9

Russia 2 1.33 Italy 13.02 Germany 12.90 Belgium Spain USA 12.15

Source: Foreign Trac

(mill 97-98 98-99 99-00 -- 10.06 1 8.04 / 6.43 -

: 8: BOP, CMIE, Mumb

00-0 1 - 260

63 28 3 1 13 9

17 -

24.32 10.71 11.94 4.95 3.62 6.59 -

i , Sept.

The collapse in producer prlces and subsequent mounting debts have devastated

farmers in Wynad district of Kerala. The coffee has no sufficient internal market. There is

over-production and little processing of coffee within the district. Wynad is home to one of

the best Robusta varieties, but there are no adequate efforts for promotion or value-addition.

Russia continued to be the major buyer of Indian coffee. The share of the US imports of

coffee declined over the years.

5.8. Problems of the Plantation Sector

The plantation sector consis-ing of crops such as pepper, coffee, tea and rubber has

been going through a turbulent phase over the last few years. This is mainly on account of

the decline in the international price of these commodities and is being attributed to over-

production and competition from new players. The steep increase in cost of production is

coupled with a steep decline in price realization. The relief measures announced range from

economic to technological and inst tutional support. The commercial and cooperative banks

have re-structured the term loan a ~ d working capital loan outstanding in favour of coffee

growers and the tea companies, including the growers and bought leaf factories, by

converting into SCTLISTTL (Special CoffeeITea Term Loan). Many market promotion

measures have been adopted both cn export and domestic front to help growers and industry.

In the case of natural rubber. such ~ackage of incentives adopted during 2002 has helped the

growers. In the case of tea and coffee, there is decline in secular trends on the price front.

The plantation sector in QR-free regime is facing the problems of price undercutting and

dumping by way of imports from neighbouring and competing countries, which leads to

depressing value of indigenous producers. "Instead of agitating against the WTO principle

of a QR-free regime, it would be far more advantageous to the plantation sector if India and

its neighbours started thinking in terms of joint marketing strategies and work towards that

goal so that the legitimate aspirations of the primary produce growers can be protected and

export interests safeguarded without the need for price undercutting and

dumpingW(Saptarishi, 2003).

5.9. India-Sri Lanka Free Trade Accord

The long-term outcome of the India-Sri Lanka Trade Accord would be establishing a

free trade area between the two co~lntries. Both the countries have agreed to a time frame for

phasing out the trade barriers affecting mutual trade. Regional economic interests will be

affected by the terms of the accord-and this assumes importance in the context of its

implications for the Southern Indian states, especially Kerala. The tropical agricultural

products and labour-intensive manufactures account for more than 85 percent of the export

earnings of Sri Lanka with India. These areas, where Sri Lanka has proved competitive

presence in the international market, could also be taken as the potential areas of Sri Lankan

import penetration to the Indian market, viz. fish and its preparations, vegetables and fruits

(mainly coconut, fresh and dried), tea, spices, tobacco manufactures, natural rubber, rubber

manufactures, textile yam, pearl and precious and semi-precious stones, clothing and

accessories, and toys. India has production base in all the areas, and they are also prominent

export items of India. The producc:rs of tropical products like tea, natural rubber, coconut

and spices and labour-intensive manufactures would lose a part of their home market to Sri

Lanka. The loss of control over the home market would affect performance in the

international market.

The South Indian states, especially, Kerala have to bear a disproportionately larger

share of the adverse consequences ctf the trade treaty. 'The free trade regime with Sri Lanka

would reduce the scope of government intervention and leave the producers at the mercy of

market forces. It is true that cost of' production, productivity, etc, are important parameters

that determine prices, profitability and market share of competitors. But, there are other

important parameters like external sector policies, which are beyond the control of

producers. Free Trade Agreements will have highly varying impact on sectors and regions

within the community. It is important to foresee such effects and provide safeguards for the

sectors and regions that are likely to bc:ar the cost of adjustment' (Harilal and Joseph, 1999)

5.10. Cashew Exports -

Cashew Kernels are considered to be a prime export product in agricultural exports,

having steady demand in the develo~sed countries. Nearly one -fourth of world production

and exports originate from India. 11ldia is the largest producer of raw cashew, largest

manufacture of cashew kernels, largest exporter of cashew kernels, largest importer of raw

cashew and the second largest consurrer in the world.

Table - 5.22: Cashew Production and Exports -World I India

1992

2001 1503231 450000

Source: htlp: //apps.fao.org

Exports I

India's share in global production of cashew was 38.83 percent in 1980 and this declined to

24.59 percent in 2002. (Table - 5.2:;) Also production in India remained stagnant in the

latter years.

There was steady increase in volume and value in both rupee terms and USD terms. (Table

- 5.24) But, there was decline in the unit value realisation of the export.

KeTaIa continues the lead in production, processing and export of cashew kernels, but its share in

Table - 5.23: Export of Cashew Kernels from India

the aggregate Indian exports is coming down. Kerala had a share of 88.30 percent

Table - 5.24: Export of Cashew Kernels: Kerala and India (Quantity in MT; Value Rs. Million)

Year 1 KERALA I KERALA I INDIA I INDIA I KERALA % I KERALA % 1

Year

1980-81 1985-86 1990-91 1991 -92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03

1991-92 31630 1992-93 2698 1 1993-94 30684 1994-95 34379 1995-96 33275 1996-97 38546 1997-98 41171 1998-99 43676 1999-00 50022 2000-0 1 49874

ource: Economic Rev

Source: Cashew 13xport Promotion Council of India, Cochin, 2003

Value USD Million.

177.20 184.00 249.10 274.00 258.50 334.20 397.20 369.90 362.41 377.13 386.78 567.61 449.37 376.33 415.33

Value 39%

Unit Value $/KG

5.49 4.96 5.31 5.74 5.93 4.78 5.16 5.26 5.28 4.92 5.02 5.86 5.04 3.83 3.26

Quantity MT

32265 37097 46874 47738 43536 69884 77000 7033 1 68663 7659 3 7707 5 9680 5 89155 9820 3

12722 7

43:!4 38f;5 5457 53f: 1 6066 73 18 7557 94C 7

1342 1 11524 9645 -

:w, State 1'1

Value Rs. Million.

1401 225 1 4422 669 1 7455

10460 12463 12405 12855 13961 16300 25695 20496 17877 20064

Quantity 49874 47738 53436 69884 77000 70334 68663 76593 77076 96805 89155

Value 4422 669 1 7455

10460 12463

- 12405 12855 1396 1 16300 25695 20496

98203 / 17887 / 56 / 54.3 1 nning Board, Govt. of Kerala, Tvm, (Various issues)

of total cashew exports in both in ./olume and value in the year 1990-91. It decreased to 56

percent in volume and 54.3 percent in value by the year 2001-02.

The US continues to be the major buyer of the Indian cashew kernels. The share of

the US has increased from 35.44 percent in 1996-97 to 53.59 percent in 2002-03.

Table - 5.:!5: Destination of Cashew Exports

Destination 1996-97 97-98 GF=FGa=G Netherlands

Japan 26 UAE 12 % Share USA

Japan U AE

(Million US

I I I I I I Source: Foreign Tr3de & BOP, CMIE, Mumbai, Sept. 2003

Kerala accounts for 30 percent of India's crop while Maharashtra accounts for 15

percent and Andhra Pradesh accc~unts for 22 percent of the crop. The total area under

cashew cultivation in India is estimated to be around seven lakh hectares. The area in

Kerala, with around 1.20 lakh hectares, accounts for 17 percent of the total area, and has

been stagnant over the past few )ears. This is primarily due to the non-plantation status

accorded to this crop in Kerala. In i he early 1960's, when the Kerala government introduced

the Land Reforms Act, cashew war taken away from the plantation status, while rubber, tea,

coffee and cardamom were treated as plantation crops. Since Kerala had a monopoly of the

cashew crop, the Land Reforms Act affected the indigenous production of cashew nuts. The

production is steadily increasing in the states of Maharashtra and Andhra Pradesh with more

acreage coming under cashew cultivation

The bulk of imports of raw iuts has been from East Africa, followed by West Africa

and the Far East. But now raw nut xoducing countries have started processing, and this has

affected availability of raw nuts an3 increase in import prices. The Central government has

targeted to achieve self-sufficiency in cashew production. There should be emergency

measures to increase production of raw nuts and modernization of processing factories so as

to remain globally competitive in this sector.

Table- 5.26: Import of Raw Cashew nuts into India

uantit MT EGFH Value Rs Mn I Value $ Mn. 195.7 1 -

2001-02 1 355666 1 9500.0 1 - Source: CEPCI, Cochin, 2003

5.11.2. Price Trends

In the 60s, the prices wen: in the range of 50 to 75 cents per lb. The decade of

seventies could be described as t~~multuous in the cashew trade. In the overseas markets,

there was state control of trading of raw cashew and they embarked on the manufacture of

cashew kernels. This halted import of raw cashew into India. The result was for the first

time a shift in unit value to a higher trajectory. Unit prices were in the range of US $ 1 .OO to

2.50 per ib. Also, there was markc,ting of a large volume of cashew kernel to the erstwhile

Soviet Union. The trend in 1980s was one of consolidation and development of the Indian

crop. The Indian domestic market also emerged as an attractive and expanding market.

Prices fluctuated widely between (IS $ 1.7 to 3.45 per lb. lndian manufacturers sourced raw

cashew through imports and this increased the capacity utilization of factories and met the

growing demand of cashew ker~~els. In 1990s, there was phenomenal growth in the

European market. The appreciaticn of European currencies against the USD saw cashew

prices drop in real terms. Rotterkm in Netherlands became the focal market for the whole

of Europe. In the year 1999, the prices soared above $ 3.00 per lb. However, from 2000,

prices again slided with decline in all the grades.

The profile of world supply has undergone a change. India and Brazil were the major -

suppliers to world markets. Now '{ietnam has emerged as a supplier. China has emerged as

a consumer of cashew kernels and Vietnam is its major supplier. The industry needs to focus

on its value chain. The export performance reveals that India has a substantial potential to

increase its exports. Considering the demand in the global market and the potential for

processing availability in the country, concrete steps are required for doubling production

for export and internal consumption.

5.11.3. Quality Considerations

The concept of total quality management (TQM) involves all factors in production,

and a means of building in qualily during the various stages of production. This concept is

the building stone of the modern quality systems such as ISO, HACCP etc. The CEPC

(Cashew Export Promotion Coun8:il) laboratory at Quilon has drawn up a scheme for cashew

processing incorporating all the requirements of GMP (Good Manufacturing Practices),

(USFDA), Codex alimenrarius C'ommission (Code of Hygiene Practice for Tree Nuts No.

CAClRCP6-1972) and Hygiene and Sanitation standard (IS 2492:1998 (revised). Training

programmes are conducted to prcmote quality management systems such as GMP, IS0

9000, and HACCP related to cashew processing.

Good Manufacturing Practices (GMP's) and Hazard Analysis and Critical Control

Points (HACCP) are two food safely programmes. GMPs are defined by USFDA. It defines

minimum standards for personnel, facilities, tools, equipment, lot controls and records.

HACCP lists the dangers to food safety and purity in a process, and lists the controls

necessary for each hazard identifiesj, and the records required to prove that the system is

working. The recent directives in food safety are aimed to ensure that HACCP and GMP are

in place at origin and reduce relience on end point surveillance. Though priority is on

seafood items, now all food items are subjected to quality controls. Thc modcrn principles

involved in IS0 9000, HACCP and GMP are not mere labels but possible guarantees and

assurances of value delivered. This can be termed as value addition in the existing value

chain.

Though the international market for organic foods is on the increase, in comparison

to the conventional food market, the organic market is still a niche market. Consumers are

willing to pay a premium for organic products because they trust in the independent andlor

third party certification systems. Cetification systems for the organic sector were mainly

developed by the private sector. In general, a certification system consists of three main

elements: Standards, Inspection and Certification. However, the existing 'organic regulatory

systems' are not harmonized betweell countries. There are also differences between private

labelling requirements and national 1:gal requirements. The first comprehensive regulation

for organic agriculture was set up in the EU in 1991. The US and Japan have similar

regulatory systems. Organic cashew c~~ltivation should be promoted on a priority basis. "The

best way for cashew industry is to augment domestic production of cashew nuts and thus get

rid of costlier imports as early as possible. The cashew industry should launch an intensive,

generic campaign for Indian cashelv in the international market, highlighting the superiority

of Indian cashew in terms of quality over other cashews and the nutritive value of cashew in

general against other tree nuts like almonds, Brazil nuts and walnuts" (Unneenkutty, 2002)

5.11. Coir Exports

India and Sri Lanka are the main coir producing countries. The other Asian countries

where coir production has taken place on a limited scale are Indonesia, Malaysia,

Philippines and Thailand. Production of coir in India and Sri Lanka has been export

oriented. In Sri Lanka, the produ~:tion is mainly limited to coir fibre and coir yarn. The

production of value added items like doormats and floor coverings is on a limited scale.

Table - 5.27: Coir Production and E x ~ o r t s - World and India (Qua

m o r l d I India Production Production &&

4 17600 625655 444700

1994 695800 494 100 1995 689290 481100

676490 485000 1997 6675 10 472500 1998 649320 465700 1999 654 190 454000

682790 468000 2001 658390 450000 2002 636640 450000 Source: ittp: Napps.fao.org

tity MT) World Exports

95294

However, in the processing of coir pith for exports as a soil conditioner, Sri Lanka

has a virtual monopoly. In India, almost the entire production of coir fibre is converted to

coir yarn for further processing to finished products like doormats, mattings, a variety of

floor coverings, coir geotextiles ctc. Of late in lndia large scale processing of coir pith

started to meet the export demard. Some countries in Europe have domestic industries

producing coir mats and floor coverings out of coir yarn and coir fibre imported from lndia

and Sri Lanka. Their production used to be consurrred locally to supplement import of coir

products from lndia and elsewhere.

Coir production is now carried out in almost all the coir producing States in lndia

and at the current level of produc..ion, the annual husk utilization for production of coir is

estimated at 30 percent of the husk availability. There is, therefore, adequate unutiiised raw

material potential for the indu:;try to grow further. The industry directly provides

employment to five lakhs of people belonging to economically weaker section of the rural

population in coir producing states in India. The product range includes doormats, mattings,

carpets, rugs, mourzouks, rubber zed coir mattresses and pillows and a variety of eco-

friendly garden articles. Other utility items include coir bhoovastra, geotextile for erosion

control, other civil engineering applications, and coirply, a wood substitute.

Coir products conform to :.he best environment friendly standards, being of organic

origin. Coir products are known to be durable, resistant to fungi, not easily combustible,

tough and resilient, and above all, (elegant and affordable.

The domestic market in l d i a , though very vast and potential, still remains

unexploited. The Coir Board, Ccir Marketing Federation of the State Government, State

Coir Corporation and State Coir I)evelopment Agencies undertake the organized marketing

besides the manufacturers in the o-ganized private sector. The organized marketing channels

cater to the institutional needs, bul are not sufficient to tap the unexploited household sector

in India.

Coir industry in lndia had ;I strong export orientation from the very beginning. The

latter half of the 19' century was characterized by a trade boom in hard fibres and witnessed

rapid expansion in the export of coir and coir goods. By the turn of the century, the export of

coir consisting of yam and rope amounted to around 40,000 tonnes. Except for the period of

two world wars, the shipment of coir from lndia had been steadily increasing till early

1960s. The total volume of coir export, which averaged 73,200 tonnes during 1950's

declined to 62,300 tonnes during 1960's. During 1970's and 1980's it fell to 45,700 tonnes

and 26,700 tonnes respectively. There was competition from plastics and synthetic goods.

However, in terms of value, there was a continued upswing. The average annual earnings of

coir was at Rs. 8 crores during the 1950's and improved to Rs. 12 crores during the 1960's

and Rs. 21 crores during the 1970's. During the 1980's it rose to Rs. 30 crores.

Table - 5.28: Exports of Coir Products uan.ity MT I Value Rs. Mn I Value $ Mn

1 254.40 1 32.17

(hop and beans cultivation), and ss raw material in coir industries in western

328.47 483.29 741.10 959.53 1293.68 1716.40 2068.47 2125.87 2389.29 292 1.89 3030.53 3 136.62 3205.84

countries. The decline in the offtake of coir yarn for hop cultivation and fall in production of

26.84 26.80 28.50 3 1.20 4 1.40 55.00 62.90 6 1.04 68.66 75.23 46.20 48.42 61.99

mats and mattings resulted in decli~e in the export of yarn from India. The introduction of

Source: Unpublished data, Coir Board, Cochin, 2003 & Foreign Trade & BOP, CMIE, 2003

The coir yarn shipped from lndia was mainly used for two purposes - in agriculture

highly competitive synthetic products and rising labour cost in Europe made coir production

no longer remunerative. But this did not result in any appreciable increase in the offiake of

coir products from India. The lack of modernization made the industry not being capable of

utilizing favourable market conditions,

Table -5.29: Destination of Exports - Coir & Coir Manufactures (Million USD & percentages)

97-98 98-99 99-00 00-01 01-02 02-03 World 68.66 75.23 46.20 48.42 61.99 72.47

16.04 18.51 12.87 15.67 21.02 26.48 6.05 6.94 5.01 4.1 l 6.48 8.40

Germany 6.07 6.31 3.66 3.99 4.41 5.51 Netherlands 8.70 7.19 3.93 3.80 4.06 4.91

Germany

Source: Foreign Trade & BoF

24.60 27.86 32.36 33.91 9.23 10.84 8.48 10.45 8.38 191 8.24 1 7.12 9.56 8.51 7.84 6.55 8.73 4.63 4.99 6.79

CMIE, Mumbai, Sept. 2003

The export of coir from lntlia is directed to more than 75 countries in the world. The

major markets continued to be the member countries of the EU. In fact, the US with a share

of 36.54 percent is the single 1arge::t market.

The phase of modernizat on of different sectors of Coir Industry needs to be

accelerated and pave way for cost sffective and productive equipment to replace the age-old

traditional and outmoded production and processing equipment. The productivity and

operational efficiency are to be further perfected. There should be a synergic effect in the

process of modernization,

Coir products for domestic and export markets are mainly manufactured by the

small-scale producers numbering rnore than 5000. They often find it difficult to get quality

raw materials like coir fibre, yarn, dyes and chemicals at reasonable price from the private

traders whom they depend for its procurement. A raw material bank should be set up for

stocking and supplying quality items at reasonable prices.

5.12.1. Minimum Export Price (NIEP) on Coir Products

The Ministry of Textiles removed completely the requirement of Minimum Export

Price on the export of coir and co r products as per the Exim Policy for the year 2002-07.

The MEP was in operation for mort: than 32 years. It was introduced with the main objective

of preventing unhealthy competition among the exporters through under-invoicing and

price-cutting at the expense of quslity standards and to prevent consequent loss of foreign

exchange earnings. After relaxations in respect of quality inspection, the rationale of

continuing the operation of Minimum Export Price, which was linked to compulsory pre-

shipment inspection, had been a rn;ijor subject of debate in the coir sector. Towards the end

of 2000, the Ministry of Textiles had partially withdrawn the operation of MEP on coir yarn

and coir products, limiting its applicability only to the basic unfinished products. Now the

export trade in coir is completely liberalized. Accordingly, Coir Board has already abolished

the operation of MEP and registrat~on of export contract that was in force on the export of

coir and coir products.

Coir Board has also withdrawn the Purchase Price (Enforcement) Scheme in April

2002, as per Ministry of Agro and Rural Industry's decision. The purchase price lost its

relevance in the absence of MEP on export of coir and coir products. The Purchase Price

(Enforcement) Scheme was introduced in 1976. The objective of the scheme was to ensure

reasonable price to the small-scale manufacturers who supply coir products to the exporters.

Under the scheme, the exporters were required to purchase their requirements mats,

mattings, rugs and carpets for e x p x t purposes from small scale manufacturers registered

with the Coir Board at a price identified by the Board for the purpose under the Purchase

Price (E) Scheme. The purchase price used to be revkwed and revised periodically by taking

into consideration the fluctuation in the cost of raw materials and wages.

Quality is a powerful compditive weapon to increase sales and market share. The

expected quality standards are hard to achieve in coir sector on account of the fact that

manufacture of basic product is 1arg:ly undertaken in tiny self-employed units scattered over

the coastal regions in Kerala and other coir producing states with low infrastructural

facilities. The different manufactur~ng processes are handled by thousands of skilled and

semi-skilled workers in different units. As such, the production and processing lack

homogeneity. The spinning of coir yarn and manufacture of basic products are carried out on

a cottage industry basis and in view of its wide spread nature, achieving standards in quality

through in-process control is difficull .

As the export of coir is managed by comparatively small and medium exporters,

their access to current market infonration is rather limited. Lack of market intelligence and

its necessary feedback have been id:ntified as an impeding factor affecting the growth of

export. In recent years, a number oSexporters have started exporting coirpith as a soil

conditioner to various destinations. Still a desired level of commercial exploitation of

coirpith is yet to be achieved. Adequate importance to research and development should be

given on a continuous basis for achieving product perfection, diversification of production

and development of new products. The efforts made by the Coir Board in research and

development with the financial support from the Government needs to be supplemented

through joint efforts from manufacturc:rs and exporters in coir sector.

A recent development of grea: significance to the coir industry is the use of coir in

the field of soil engineering to solve the problems due to soil erosion. So far various types of

geo synthetics have been in use. But coir, jute and other natural products started gaining

popularity as an eco-friendly subst,tute to synthetic products in a many areas of bio-

engineering applications. A recent study - by International Trade Centre, Geneva reveals that

coir geo textiles have a very fast growing global market. According to L'fC study, the

prevailing global market situation p~.ovides adequate scope for the rubberized coir industry

in India and Sri Lanka to export thsir products in the form of vehicle/furniture/upholstery

and as insulation pads. The legislation banning the use of polyurethane in the U K and

enforcement of stringent fiber ret~rdancy standards on polyurethane forms elsewhere in

Europe provides scope for exporting rubberized coir from the producing countries for use as

vehicle and furniture upholstery.

The market of coirpith for garden sector is large and growing. The coir pith has

entered the market as a soil condil ioner. The organic manure manufactured from coir pith

using pith-plus is gaining popularity in the agricultural sector.

Design development and ~roduct diversification should be made thrust areas of

market promotion. A number of exporting firms in coir sector have set up exclusive design

development wings to cater to the changing taste of the world market. The effort of the Coir

Board in the development of new designs in collaboration with National Institute of Design,

Ahmedabad and organizing a number of design workshops for the benefit of the industry are

steps in the right direction. The increased ecological consciousness has led to increased

interest in renewable raw materials and environmental safe products. This provides vast

opportunities for coir to enter the world market in different forms as raw material, consumer

products or industrial products.

There is uncertainty in the industry, due to the shortage of good quality coconut fibre

and the steep hike in its price. The State is now dependent on Tamil Nadu for its coconut

fibre needs. Though the State pr8~duces the highest number of coconuts in the country, the -

coconut fibre produced could suftice only 10 percent of the demand for fibre. The fine

quality of golden fibre produced by retting coconut husk in the backwaters of the State has

become scarce. This has affected [he quality of coir being exported from the State. The

major share of coconut husk prod~ced in Thrissur, Palakkad, Malapuram and Kozhikode

districts is processed in Tamil N a d ~ and brought back to Kerala at a high price. There should

be a proper system to collect coconut husk available in the State for processing the same for

manufacture of quality fibre.

The Brand identity has tecome a key factor in the present day marketing of

commodities in the domestic as well as the international market. The brand helps in building

up an image, identity and impacc for a stronger presence for the product in the market.

Promotional efforts should be implemented for developing a brand image for Indian coir in

the domestic as well as international markets.

5.12. Cochin Special Economic Zone

The objectives of SEZs ate much larger than mere promotion of export processing

activities. While EPZs are indus.rial estates, SEZs are virtually industrial townships that

provide supportive infrastructure such as housing, roads, ports and telecommunication. The

scope of activities that can be unclertaken in the SEZs is much wider and their linkages with

the domestic economy are strong(:r. According to the guidelines, the area of an SEZ should

ideally be 1,000 hectares. The enlrepreneurs will be free from routine inspections of import-

export cargo. Procedures for operations such as record keeping, inter-unit transfer, sub-

contracting and disposal of obsolete material will be simpler. Enterprises will be allowed to

utilize duty free raw materials over five years. Recovery of duty in case of failure to achieve

NFEE (Net Foreign Exchange Earnings) will be in proportion to the shortfall. These changes

will definitely make the custom; regime investor friendly. The incentive package is quite

liberal - duty free import of capita goods and raw materials, reimbursement of central sales

tax, tax holiday for specified period, 100 percent repatriation of profits for subcontracting

facilities etc. Thus as far as size, customs regime and incentive packages are concerned, the

Indian policy compares favourably with the Chinese policy framework. But in relation to the

regime of labour laws, decentraliz;bion of powers in favour of state governments and the

duty structure for DTA (Domestic Tariff Area) access, i t falls short of expectations. The

labour laws have to be made flexilde, and state government participation is essential. The

proposed policy of levying full imp3rt duty on DTA sales does not seem to be right in view

of the current differentials in the effective rates of import and excise duties. The SEZs will

only attract import sensitive investrlent with low net foreign exchange earnings. In case of

EPUEOUs duty on DTA sale is ch:~rged at 50 percent of import duties and for units based

on indigenous inputs the liability is for payment of excise duties only.

Table - 5.30: Trends in Import, Export, NFEE of CSEZ

Year

1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03

Source: Unpublished data, CSEZ, Cochin, 2003

Import Rs Mn

3.73 15.811 60.31)

136.00 52.50

244.80 540.80 590.80 507.50 727.40

1 139.90 1142.70 1170.10 1326.8(1 221 1.2C 1750.31 1400.9C

Export RsMn

9.40 39.20 62.50

1 10.00 54.60

285.70 622.50 838.10

1025.30 1203.06 1653.70 1745.10 2000.50 2425.30 3043.00 2788.20 31 19.30

NFEE

5.70 23.40

2.20 -26.00

2.10 40.90 8 1.70

237.30 5 17.80 435.66 5 13.80 602.40

-830.40 1098.50 83 1.80

1037.90 1718.40

NFEE as % of Exports

60.60 59.70

3.50 -23.00

3.50 14.30 13.10 29.50 50.50 39.50 31.10 34.50 41 .SO 45.29 27.33

. 37.22 55.09

- Export Processing Zones (EPZ) are viewed as transitional instruments for shifting

from inward looking to an open economy. They are to facilitate export of manufactures in

the designated enclaves under a dut)r-free regime.

Cochin export zone became SEZ from 1'' Nov. 2000. The growth and performance

of the zone can be evaluated in terms of export-import trends. (Table - 5.32) Both exports

and imports increased, and share of NFEE as percentage of exports showed remarkable

increase in the recent years. This shows increasing share of value-added exports from the

CSEZ. Exports reached Rs. 31 1.93 crores in 2002-03.

The sector analysis shows that Electronics hardware and software constituted nearly 50

percent of the total exports, but its share has come down.

Table - 5.31: Sector-wise Export Performance of CSEZ (Rs crores)

Electr. Software

Rubber 20.08 27.76 Engineering Food & Agro Others Total

Source: Unput~lished data, CSEZ, Cochin, 2003

5.12.1.100% EOUs in Kerala

The EOU scheme has wiinessed rapid growth after 1991. In Kerala, there was only

one EOU till 1990-91. It rose u.3 to 27 in 1997-98. The sectoral composition of EOUs is

much more diverse and broad-based, as the products range from agro-based to engineering

goods. Considering India's poor share in global agricultural exports and its potential, the

policy should be conducive for strengthening krther the growth of agro-based EOUs.

Performance in terms of export obligations is also higher in EOUs than in EPZ. Compared

to the growth of CEPZ in terms of cxports, the EOU sector i n Kerala is better and consistent.

NFEE in EOUs is also greater compared to EPZ, because of the lower import intensity of the

former. The total exports from lOC% EOUs in the state in 1992-93 was Rs 51.76 rores. The

export figure reached Rs 686.94 cn)res in 2002-03.

Table - 5.32: Sector wise Export Performance of 100% EOUs in Kerala

Tea Spices & Oleoresins Cotton Yarn & l'extiles Engineering Electronic Software Miscellaneous

I Total 1 606.93 1 678.88 1 686.94 1 Source: Unp~blished data, CSEZ, Cochin, 2003

5.13. Manpower Exports

Migration from Kerala to other states in India and abroad is common and its impact

is felt on all walks of life in the stite. According to a study by Kannan and Hari (2002), the

best estimate of the number of emigrants from Kerala was 1.36 million. According to

"Survey on Activity Status and Rehabilitation of Migrants from Kerala" conducted in 1999

by the Department of Economics ;and Statistics, there are 11.41 lakh Keralites working in

different parts of the world. This constitutes about 3.6 percent of the total population of

Kerala. 95.6 percent of the migrants are in the Gulf countries. The study shows that by early

1990's remittances to Kerala economy had assumed a significant share of state income. This

ranges from 17 percent in 1991-92 and 24 percent in 1997-98 with an average of 22 percent

for the second half of the 1990's. The large increase in terms of rupee is due to depreciation

in the value of the rupee vis-a-vis the US Dollar. The state thus benefited significantly from

the liberalization of the exchange rate. The study added the remittance income to the State

Domestic Product (NSD) and cor~structed a modified state income series. As a result,

Kerala's per capita income not only caught up with the average per capita income for India

but started exceeding it reaching 4S percent above the national average by the end of 1990's.

This tallies with per capita consumer expenditure in Kerala, which was in excess of 41

percent above the national average ~y the end of 1990's.

By the nineties savings rate in the Kerala economy reached such high levels as those

comparable to the East and South East Asian countries. By the end of the nineties,

remittances were well above the total State Government expenditure. Remittances to Kerala

constituted as much as 22 percent of the Net State Domestic Product by 2000. Remittances

in 2001 were larger than the annual budget of Kerala for the year 2001-02. 'In short,

migration seems to be the single most dynamic factor in the otherwise slow growth and

dreary employment scenario of Kerala during the last 25 years' (Pushpangadhan, 2003).

;its in Kerala

Annual Amount

10572 12068

25.6 13176 14817 18203

40.5 19895

Table - 5.33: Growth in Bank De c ;its Annual Growth (%I

20.5

Year (March) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

The rate of growth of NR;3 deposits is higher than the rate of growth in domestic

deposits for the period 1991-2002. The NRE deposits constituted nearly 48 percent of the

total deposits in Kerala, which is one of the highest in India. This underscores the

importance of overseas remittance:; in the Kerala economy and the factor of migration in the

overall development of the state. Human resources development and its ramifications for

Source: Economic Review, Sta e Planning B

Total deposits NRE de osi

14.5 23419 14.5 27 122

Amount (Rs. CIS)

7935 9787

12261 15138 17694 20419 23354 27552 3 1532 38619 44850 51656

17.7 15.8

Annual Amount

23.3 25.3 23.5 16.9 15.4 14.4 10178 18.0 12735 14.4 13329 22.5 18724 16.1 21431 15.2 24534

ard, Govt. of Kerala, Tvm, 2002

promotion of national and international migration are to be seriously accounted for in the

growth strategy of the state. This c:learly shows that the state has greater stake in the on-

going WTO parleys on the liberalization of services sector, especially in the context of

discussion on Mode-4 supply of services. The state government should insist on inclusion of

liberalization in movement of natural persons as a quidpro quo for inclusion of other issues

in WTO negotiations.

"The revival and acceleration of the growth of Kerala economy in the 90s are mainly

attributable to the growth and structural change in the consumer expenditure. This is made

possible to a considerable extent by the combined effect of migration and the reform process

started in the late 80s and 90s. Thcre are a few strategies for the economy to take-off into

self-sustainable growth. The first and foremost one is the promotion of migration. This

would imply among other things, state's active involvement in locating the hidden markets

for skilled labour globally and providing them world-class training facilities".

(Pushpangadhan, 2003)

5.14. Software Exports

Trade in software is carried out mainly through (a) on-site services (b) offshore

services (c) offshore products and packages, the underlying distinction being the movement

of provider and the receiver involved.

The recorded rate of growth in exports, over 50 percent in the sub periods as well as

for the whole period, both in rupees and dollars, is almost unprecedented compared to in any

other sectors of the Indian econom,! (Table - 5.35). The phenomenal increase in the export

growth has to be viewed in terms ofthe growing world demand, comparative advantage that

India has on account of the highly skilled, English speaking manpower at relatively low cost

and the time difference between India and the US, which continues to be the major export

market for India.

Table - 5.34: Trend in Software Export from India Year (Mar-A ril) Rs M~llion ] Growth rate ] $Million I Growth rate

-2500 1 1 128 (

On account of substantial imports a:;sociated with software exports, the net export earning

:!5200 :I9000 65300

109400 I72000

Annual average growth ntte Annual compound grow11 rates 1990-91 to 1995-96 1995-96 to 1999-00 1990-91 to 1999-00

would be substantially less and not lr~ore than fifty per cent of gross exports.

Table - 5.35: Structure of Software Exports from

Source: Directory, NASSCOM, New Delhi, 2000

72.00 56.98 51.1+ 50.49 64.1 7 54.76 67.44 67.53 57.22

60.19

78.18 61.63 60.02

India

Source: Directory, NASSCOM, New Delhi, 2000

164 225 330 485 734

I085 1750 2650 3900

Hence to achieve the targeted $5(1 billion exports, it is important that Indian software .-

industry goes up in the value chain and progressively increase offshore development. It is

also important that the industry deielops strategy towards import reduction. The share of

Kerala in total software exports remained very low at Rs. 200 crores, which is only 1.5

percent of the total software export e:arnings from the country.

28.13 37.20 46.67 46.97 51.34

. 47.82 61.29 5 1.43 47.17

46.45

54.74 5 1.82 46.10

5.15. Commission on WTO Concerrls

The state government of Kerzla constituted a Commission on WTO concerns (2003)

under M.S. Swaminathan to suggc:st state-specific measures to prepare Kerala's farm

economy to meet the challenges posed by new world trade order. The Commission has

recommended a fresh set of mod;llities for further negotiations. It is pointed out that

globalisation has proved to be inkerently asymmetric in its impact. The Agreement on

Agriculture (AoA), adopted in 1995, should be re-designed on a pro-poor, pro-small farmer,

pro-livelihoods and pro-environment framework. There is an opportunity now to rectify

some of the gross inequities and infirmities characteristic of the AoA in the on-going post-

Doha negotiations. -

The categorization of domt:stic support to farmers into 'Blue Box' payments and

'Green Box' measures has resulted in huge subsidies remaining non-actionable in the EU

and the US. The OECD countries r~rovide subsidies to the extent of one billion dollars a day

to their farmers, but still escape action, as they do not fall within the purview of the 'amber

box' measures which alone are considered actionable. The Swaminathan Commission has

recommended for a fourth box, to be called a "Livelihood Security Box", which would

empower the developing nations to face the challenge of providing livelihoods to the rural

population, and place restrictions on imports, where there is a convincing evidence that such

imports would erode job and livelihood opportunities in their countries. Over 60 per cent of

the population of developing countries including India depends on agriculture for their

livelihood. Trade, which leads to destruction of rural jobs and livelihoods will further

enhance poverty and hunger.

The Commission is of the view that the percentage of population dependent on

agriculture for their livelihood ~h~~ulct-be the criteria for eligibility for using the provision of

the proposed Livelihood Security Box, the minimum being 50 per cent. The idea of a

'Development Box' has been suggc:sted by a group of developing countries. Such a scheme

would include measures that would provide market access for the crops produced by the low

income and resource-poor farmers with higher levels of domestic support for these farmers

in keeping with the Article 6.2 of the AoA.

Also, the continued refereme to the very modest help being extended to millions of

small farm families, as subsidy, was proving counter-productive. Since a range of domestic

support measures such as those relating to infrastructure development and many other forms

of public provisioning are non-trace-distorting and hence, non-actionable, the term subsidy

should be replaced with the coinagc 'support for sustainable farming and rural livelihoods'.

In the sphere of market access, all non-tariff barriers in the way of access to the

markets of industrialized countrier, should be reviewed and removed. Unrealistically high

sanitary and phyto-sanitary standards are often being used to create trade barriers against

developing country exports. India and other developing countries must become part of the

process by which sanitary and phyio-sanitary standards are decided upon. At the same time,

the country must evolve its own standards for both domestic products and imports.

Developing countries in which over 50 pir cent of the population depend upon

agriculture for their livelihoods should be allowed to raise tariffs within certain limits and

impose quantitative restrictions on imports where there is clear evidence that imports will

erode the livelihoods of small farm:rs and asset-less rural women and men.

The revised TRIPS should 11e made compatible with the equity and ethics provisions

of the Convention on Biological Eiversity and the F A 0 Treaty on Plant Genetic Resources

for Food and Agriculture. An objective system for including items in this list should be

developed. Historical antiquity of product names like 'Malabar pepper' should be an

important criterion for inclusion in the list.

The concept of 'multi-functionality of agriculture' being advocated by developed

countries, should not be used to :nhance subsidies and erect non-trade barriers in the

industrialized countries. A code of conduct relating to the principle of multi-functionality of

agriculture should be developed.

The implementation of the WTO provisions has necessitated the need for

restructuring of Kerala agriculture. As nearly 80 per cent of the cultivated land in Kerala is

under perennial crops, a much lorlger 'adjustment period' - at least five to ten years of

limited protection and additional nvestment support - to the new environment must be

provided. During this period, the safeguards provided under the WTO in terms of imposition

of tariff and such other measures should be made use of. This would give farmers in the

state time to acquire the necessary rade capabilities. Also affecting Kerala economy are low

bound rates and applied tariff rates for rubber.

Measures should be taken at the national as well as the WTO level to develop a Tariffication - Code based on principles of equity and the livelihood security of small farm families. The

various commodity boards such as those of tea, coffee, rubber, coconut and spices should be

re-structured and re-tooled to face the challenges of the new global trade environment.