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1 CHAPTER - VIII SUMMARY AND CONCLUSION This chapter presents a summary of work done viz, statement of problem, objectives, Methodology and findings. Besides, the data were empirically tested and the conclusions are drawn. In general, the results of the analysis point out that the domestic and international markets offer plenty of opportunities to Indian pepper provided, India is able to fight the emerging challenges effectively. At the same time, as indicated at various stages of the report, exporters are presently facing a lot of difficulties which compel many of them to give up the field itself. The study gives clear indications about the possible strategies, which can be adopted to revive and regain the lost glory of Indian pepper in and outside our country. Isolated efforts of the pepper exporters, Spices Board of the government will not be sufficient to regenerate the sector. Instead, the problems of the sector can be solved only through an intensive effort integrating all. The findings of the study lead to the conclusion that such an effort would help in fetching to large volume of foreign exchange inflow and prosperity of the spices sector. Statement of the Problem The export of agricultural commodities earns not only foreign exchange but also provides the much needed competitiveness in production and productivity in the global market. Pepper, known as the king of spices, plays a dominating role in the world market as well as in domestic market. According to IPC Market Review in 2011, the main 201

2 pepper producing countries in the world are in Asia. Till 1999, India was the main producer of pepper in the world followed by Indonesia. From 1999 onwards, Vietnam emerged as the top producing country pushing India to the second place. According to IPC figures, Indian production of pepper is around tonnes in as against tonnes during which may be due to low productivity. However, the latest report from Spices Board of India indicates that the pepper export for the period April- August 2011 has risen by 12 per cent to 8750 tonnes from 7800 tonnes in of same period. Though production of pepper in India is found to be lower in as compared to 1991, the increased export demand for Indian pepper indicates the acceptance of Indian pepper quality in global market. In India, the export promotion strategies were more pronounced only after the new economic policy (NEP) of Hence, this study has been taken for analysis. Objectives The study on pepper production and export during the post globalisation period (from ) is undertaken with specific objectives of; (i) to examine the growth and stability in pepper production and export, (ii) to understand the direction of trade of pepper exports and forecast the export, (iii) to analyse the spatial integration between pepper markets, (iv) to assess the trade practices of large, medium and small pepper exporters and to offer specific suggestions, based on findings, to promote export of pepper. Methodology This study is an exploratory one. The data and other information required for the study were collected from both primary and secondary sources. Primary data were collected 202

3 from the pepper exporters in the three major states using a structured interview schedule and the secondary data were collected from various reports of the Spices Board and also from Economic Intelligent Service (EIS) in Prowess from Centre for Monitoring Industrial Economy (CMIE). Other related data were collected from various magazines, journals, books and from online sources. To assess the trade practices followed by the various categories of pepper exporters, 58 respondents were selected. As the data relating to the number of exporters -exporting only pepper, from each state were not available, the sample respondents were chosen from spices exporters who were exporting pepper as one of the spices. For the study, these spices exporters were treated as pepper exporters. Out of 28 states in India, pepper production in three southern states viz., Kerala, Karnataka and Tamilnadu accounted for more than 95 per cent during the study period. Moreover, the exporters are normally located closer to main spice growing centres. Hence, the sample respondents were selected from these three states as 27 from Kerala, 13 from Karnataka and 18 from Tamilnadu using Simple Random sampling method. For this study, the exporters were categorised as small, medium and large exporter based on their annual export volume traded which is shown below. Small Scale Exporters- whose annual export volume was less than 25,000 tonnes. Medium Scale Exporters- whose annual export volume was more than 25,000 tonnes but less than 50,000 tonnes. Large scale Exporters- whose annual export volume was more than 50,000 tonnes. The period of study was 20 years from to To apply the ARIMA model the data for 50 years from to were used. For the Co-integration analysis, monthly pepper market prices (for India and Vietnam) from April 2005 to March 2010 were used. 203

4 Findings Growth and Instability in Pepper Production Kerala Overall, the growth in production was negative at a rate of 1.46 per cent per annum which was mainly due to the low productivity and also by shrinkage in area from 2005 onwards. A stagnation in pepper production was noticed with a negative growth rate (2.52 per cent) registered during the latest period. This is not a welcoming sign to Kerala because it has the suitable climatic condition for the production of pepper. The instability Index also showed the same results stating that the fluctuation in pepper productivity was the main reason for the instability in production. Karnataka The overall growth of Karnataka in terms of area, production and productivity was had shown an increasing trend with a high and positive growth rate. This was mainly attributed to the increase in area than in productivity. Moreover, a phenomenal growth in production of pepper (32.43 per cent) was noticed in Period III mainly due to the high growth rate in area (31.93 per cent). During the overall period, the high fluctuation in productivity (also revealed by the negative growth rate) could be the main cause for the Instability in production of pepper of Karnataka. In the latest period except productivity, pepper cultivable area and production were showing positive growth stating that the growth in production of Karnataka was area led growth. Tamilnadu In Tamilnadu, the growth in production during the overall period was area led growth because the growth rates in productivity were negative during all periods except 204

5 Period III. However, the growth in area, production and productivity was declining with a negative growth rate observed in the latest period. The highest degree of Instability in production of pepper was noticed compared to other sub periods which was mainly due to the instability in productivity than in area. Other States For the overall period, the growth in production of pepper was mainly due to productivity and like other states, the growth in area, production and productivity was decelerating with negative growth rates during the latest period and the growth was high during the Period III. The instability in production was also mainly due to the instability in productivity than in area. India s Pepper Production The total pepper production of the country had shown a very low CAGR of 0.04 per cent per annum during the last two decades ( ). But there was difference in growth rates among the sub periods. Of this, the growth in area, production and productivity was the highest during the Period III. Overall, the instability in production was mainly due to instability in productivity than in area, observed even in all sub periods. To conclude, the production of pepper was growing at a very low rate mainly due to the negative growth (deceleration) in productivity than in area which was observed in all major states (except Karnataka) during the latest period. Among three states, the growth in production of Karnataka was the highest at per cent, contributing to the overall growth of the country. However, the growth in Kerala, the major contributor of 205

6 pepper, was alarming with a negative rate of 1.46 per cent per annum. The analysis on instability index also revealed that faster the growth in pepper production higher will be the instability which was seen for Karnataka with a CAGR of per cent and instability at per cent and for other states with a CAGR of per cent and instability at a higher rate of per cent, in the sub periods Growth and Instability in Pepper Export Major item of pepper export Both, by quantity and value, black pepper remained as the single largest contributor to total pepper exported, without any value addition, followed by pepper powder and green pepper. It indicated that still India is exporting pepper in while form which would not be price competitive. However, the share of value addition peppers such as pepper powder, pepper in brine, FR. DRY green pepper, started increasing tremendously revealing that there is a growing demand and market for these products. Moreover, the mean unit value realised by FR. DRY. Green pepper was ten times higher than mean unit value realised by Black pepper. India s Pepper Export On overall basis, the pepper export growth was positive but very low in terms of growth value and unit value but negative in quantitative terms revealing that the pepper export earnings were mainly due to high unit value realisation than by quantity. However, an increasing compound growth rates registered for quantity, value and unit value of total Indian pepper export during the latest period ( to ) were indicating that the opportunity to expand the pepper trade in other global markets. 206

7 Product-wise Export Among the pepper products pepper powder was the top most item of export with the highest. The highest CAGR of per cent followed by white pepper (18.27 per cent per annum)and other products (17.19 per cent per annum during the latest period. However, for other products the CAGR was negative which is a cause of concern to the country s export. Moreover, the negative growth registered for unit value, for all pepper products (except white pepper), on overall basis, could be the cause for deceleration in the export earnings from pepper. This indicated that Indian pepper products (both bulk and value added form) were fetching lower prices in the international market. However, the positive growth rates registered in all products (except long pepper) during the latest period was encouraging. The overall growth of black pepper was negative in terms of all three variables alarming. However, the positive growth registered during the latest period is giving the hope to promote this product. The existence of high level of instability observed during to in pepper export, by all three variables, had serious implications in promoting the product. Because the instability in export earnings from pepper was due to the variations in both quantity exported and unit value realised. Direction of Export A major share of 57 per cent of Indian pepper (by quantity) were directed to three markets namely USA, UK and Germany. With the highest CAGR of per cent, Singapore would be the potential market for Indian pepper whereas with the negative compound growth rates, both Germany and Saudi Arabia market had shrunk considerably during the review period. The Markov chain analysis revealed that, among the major 207

8 markets, USA and UK were stable markets for Indian pepper with high transitional probability whereas other markets were considered to be unstable with low transitional probability. Spatial Integration Co-integration technique revealed that none of the markets attained stationary at their original price level. However, the Indian and Vietnam markets attained the price series stationarity at the first order of integration, indicating that these two markets regularly followed each other. In other words, the results of co integration analysis for pepper prices of India and Vietnam showed the existence of one co integrating vector which confirmed that the domestic and international pepper market were co integrated to each other. Forecast of Pepper Export The projection by applying ARIMA model put the total pepper export in terms of value as Rs million, Rs million and Rs million, in the years , and respectively. But considering the present trend in growth of area, production and productivity, attaining the projected figures may not be possible. Trade practices Scale wise Problems encountered by the pepper exporters Among the problems encountered by the exporters. It is observed from the table that increased regulatory measures was ranked first by respondents with the mean score of 51.91, Price factor was ranked as second with the mean score of Intensified competition was ranked as third with the mean score of Moreover, lack of value 208

9 addition facilities (mean score of 46.76), upgrading product quality (mean score of 46.67), Promoting brand names (mean score of 45.02) and exploring new markets (mean score of 43.86) were ranked as fourth, fifth, sixth and seventh problems respectively. Finally supply chain management was ranked as eighth with the mean score of Conclusion Above summary of findings was useful to verify the hypothesis of the study and draw conclusion. The first hypothesis of the study was that There is instability in pepper production and export. Results of instability index showed that a high degree of instability in production was noticed for all states (except Karnataka) in the overall period with a high index value as compared to other sub periods. Hence, the null hypothesis is accepted. The second hypothesis of the study was Pepper markets are not spatially integrated. Results of co-integration test proved that the integration between India and Vietnam pepper market was existing as (vide Table 6.3 to 6.6) and there is evidence of causality. Hence, the null hypothesis is rejected stating that pepper markets are spatially integrated. The final hypothesis of the study was that Pepper exporters do not differ scale wise on export trade practices. Results of Chi-square test proved that the scale wise the exporters do not differ in trade practices adopted by them such as securing export order, getting supply, fetching international price, financial settlement and contract default, international competition, domestic competition, legal formalities, banker s support, government support, effectiveness of spices board except price fluctuation. Hence, the null hypothesis is accepted. 209

10 Policy implications Above findings lead to specific policy implications. India can withstand the competition only by increasing productivity and thereby reducing the cost of cultivation. As low productivity is observed in the study, there is an urgent need to improve this by replanting old and uneconomic trees with high yielding varieties like black pepper, green pepper etc. Moreover, the farmers may be encouraged to cultivate pepper as intercrop in the existing coconut/ areca nut/ ril palm plantations. The pepper productivity and area may also be stabilized though crop insurance scheme, which in turn, would protect the producers from price fluctuations. However, adoption of productivity enhancement measures by small and marginal farmers (especially in pepper cultivation) such as, usage of fertilizer, disease control measures, soil conservation measures, are highly price sensitive. Therefore, there is a need to develop low cost developmental strategy for improving production. Promotion of organic spices production may be encouraged so as to cash in on the gearing demand for organic produce in the world market. However, the expenses involved in the process of certification remains a major challenge to be addressed. Like black pepper, green pepper is also an ideal variety for export. Hence, exporters may be encouraged to export this variety both in whole farm and in value addition form. The Spices Board may help the exporters by providing needed infrastructure to do value addition. 210

11 The high dependency on the developed countries such as USA, UK and Germany for pepper export would increase the trade risk in the near future. Hence, it is necessary to diversify the geographical concentration by exploring new markets. Price competition for black pepper, in the global market is another major challenge for Indian pepper Industry. A realistic price reduction to offer healthy competition to the major competitor i.e. Vietnam, should be seriously thought of. The future growth potential for pepper lies mainly for value added and packaged consumer products. The Spices Board has to provide financial support and encourage other agencies to increase Research and Development activities to identify other nutritional values of spices. Moreover, the feasibility of developing and promoting Indian branded products is to be examined through market testing. Good agricultural practices among pepper growers must be promoted in order to offer cleaner raw materials (without pesticide residues, heavy metals or other contaminants) to the processors seeking to add value to the products so as to facilitate them to export common brand name. Indian pepper is much valued in the world market because of their intrinsic qualities. However, import of low grade pepper to India and re-export under the Indian label should be viewed very seriously. A good motivation for the small exporters to entering this trade may be given various incentives by the government. In order to promote export of pepper the government policies have to fulfil the important areas like exchange rate management, inflation management and undertaking of market based price reforms, reduction of tariffs, creation of 211

12 favourable credit and tax provisions, building necessary infrastructure facilities, strengthening certain bureaucratic systems. It was hoped that once the envisaged reforms are implemented in letter and spirit, the gains to Indian agriculture would be positive and substantial. But the recent deceleration of growth in both pepper production as well as productivity has however been a cause of worry. Unless this trend is reserved, India may not be able to take on the opportunities that may be made available to it in the wake of globalisation. Reversal of this trend, would however, require action on a number of fronts such as motivating public investment in agriculture, extending the coverage of irrigation to a much larger cultivated area and facilitating the exports with a suitable foreign trade policy. Moreover, it would be imperative to pursue reforms vigorously in many areas such as agricultural research, extension, credit, marketing, etc. since these reforms collectively would determine the reduction in cost of production and profitability of agriculture. It is the profitability that would, ultimately drive the engine of innovation, entrepreneurship and growth. Scope for further studies topics are The scope for further research on the product pepper is wider and the suggested 1. Export Potential for Green Pepper 2. Economic Implications of Value Addition to Pepper Exporters 3. Problems and Prospects of Pepper Exporters India. 4. Impact of forward contracts on Pepper Export performance. 212