EXPORT PERFORMANCE AND COMPETITIVENESS OF TOBACCO AND ITS PRODUCTS FROM INDIA

Transcription

1 EXPORT PERFORMANCE AND COMPETITIVENESS OF TOBACCO AND ITS PRODUCTS FROM INDIA Thesis submitted to the University of Agricultural Sciences, Dharwad in partial fulfilment of the requirements for the Degree of MASTER OF BUSINESS ADMINISTRATION IN AGRIBUSINESS BY NATARAJ PATTED DEPARTMENT OF AGRIBUSINESS MANAGEMENT COLLEGE OF AGRICULTURE, DHARWAD UNIVERSITY OF AGRICULTURAL SCIENCES, DHARWAD JUNE, 2012

2 ADVISORY COMMITTEE DHARWAD (N. M. KERUR ) JUNE, 2012 MAJOR ADVISOR Approved by : Chairman : (N.M.KERUR) Members : 1. (B. K. NAIK) 2. (A.D.NAIK) 3. (C.K.VENUGOPAL) 4. (S. G. ASKI)

3 C O N T E N T S Sl. No. CERTIFICATE ACKNOWLEDGEMENT LIST OF TABLES LIST OF FIGURES 1. INTRODUCTION 2. REVIEW OF LITERATURE 2.1 Growth rate and trend analysis. 2.2 Export Performance Ratio. 2.3 Export competitiveness. 2.4 Direction of trade 3. METHODOLOGY 3.1 Description of the study area 3.2 Data Collection Chapter particulars 3.3 Analytical tools and techniques employed 3.4 Concepts and terms used in the study 4. RESULTS 4.1 Growth in area, production and productivity of Tobacco. 4.2 Trends in exports of Tobacco and its products. 4.3 Export performance of Tobacco and its products 4.4 Competitiveness and direction of trade of tobacco and its products 5. DISCUSSION 5.1 Growth in area, production and productivity of Tobacco 5.2 Trends in exports of Tobacco and its products. 5.3 Export performance of Tobacco and its products 5.4 Competitiveness and direction of trade of tobacco and its products 6. SUMMARY AND POLICY IMPLICATIONS REFERENCES

4 LIST OF TABLES Table No. Title 3.1 Estimation of Nominal Protection Coefficient (NPC) (Exportable Hypothesis) 4.1 Growth rate of Area, Production and Productivity of Tobacco in India 4.2 Trends in Export of unmanufactured tobacco from India 4.3 Trends in Export of manufactured tobacco from India 4.4 Export performance ratio of unmanufactured tobacco products from India 4.5 Export performance ratio of manufactured tobacco products from India 4.6 Nominal Protection Coefficient for Flue Cured Virginia tobacco 4.7 Nominal Protection Coefficient for Sun Cured Virginia tobacco 4.8 Nominal Protection Coefficient for Steamed tobacco 4.9 Nominal Protection Coefficient for Non steamed tobacco 4.10 Nominal Protection Coefficient for Cigarette 4.11 Nominal Protection Coefficient for Chewing tobacco 4.12 Nominal Protection Coefficient for Jarda scented tobacco 4.13 Nominal Protection Coefficient for Hookah tobacco 4.14 Transitional probability matrix of Flue Cured Virginia exports from India 4.15 Projections of Flue Cured Virginia exports to major importing countries 4.16 Transitional probability matrix of Sun Cured Virginia exports from India 4.17 Projections of Sun Cured Virginia exports to major importing countries Contd..

5 Table No. Title 4.18 Transitional probability matrix of Steamed tobacco exports from India 4.19 Projections of Steamed tobacco exports to major importing countries Transitional probability matrix of Non steamed tobacco exports from India 4.21 Projections of Non steamed tobacco exports to major importing countries Transitional probability matrix of Cigarette exports from India Projections of Cigarette exports to major importing countries Transitional probability matrix of Chewing tobacco exports from India Projections of Chewing tobacco exports to major importing countries Transitional probability matrix of Jarda scented tobacco exports from India Projections of Jarda scented tobacco exports to major importing countries Transitional probability matrix of Hookah tobacco exports from India 4.29 Projections of Hookah tobacco exports to major importing countries.

6 LIST OF FIGURES Figure No. Title 1 Trend in area, production and productivity of tobacco crop in India 2 Export performance ratio of unmanufactured tobacco products over the years 3 Export performance ratio of manufactured tobacco products over the years 4 Composition of NPC for flue cured virginia tobacco exported from India 5 Composition of NPC for sun cured virginia tobacco exported from India 6 Composition of NPC for steamed tobacco exported from India 7 Composition of NPC for non-steamed tobacco exported from India 8 Composition of NPC for cigaratee exported from India 9 Composition of NPC for chewing tobacco exported from India 10 Composition of NPC for jarda scented tobacco exported from India 11 Composition of NPC for hookah tobacco exported from India

7 1. INTRODUCTION According to the International Encyclopedia of Social Sciences, tobacco was first used by the Americans. It was introduced to the old world by Columbus. Although many attempts to hold its spread and to eliminate its use were done by the authorities in all the European and Muslim countries, tobacco smoking increasingly spread throughout the world. Tobacco was introduced in India by Portuguese in the sixteenth century. Today, it is cultivated in all parts of the country. Tobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as a pesticide and, in the form of nicotine tartrate, used in some medicines Botanically, the tobacco plant belongs to the family Solanaceae and genus Nicotiana. The genus embraces over 60 species, of which two are cultivated. India grows the cultivated species, viz. Nicotiana tabaccum and Nicotiana rustica. About 5 to 6 per cent of the total area under tobacco is accounted for Nicotiana rustica varieties whereas, Nicotiana tabaccum accounts for more than 80 per cent of the total area under tobacco. The rustica varieties known as vilayati and calcutti have dwarf plants with round puckered leaves and yellow flowers. The varieties of tabaccum, which are called deshi type, have tall plants with long, broad leaves and usually pink flowers. Varieties of tabaccum species are used to hookah, chewing and snuff purpose only. However, tobacco produced especially from rustica species is also preferred for cigarette manufacturing due to its superior quality. Tobacco is also used for medical purpose as well as manufacturing insecticides. Tobacco also called as Golden Leaf is one of the important commercial crops of India and being so, it is vital in the Indian economy. It provides employment directly and indirectly to 36 millions of people. Although the cultivation of Tobacco is restricted to 0.3 per cent of the total cultivated area, it provides employment to a large number of people on the one hand, it makes significant contribution to national exchequer by way of excise revenue and foreign exchange earnings to the another side. Tobacco is a labour-intensive crop in India. Growing, harvesting and processing of tobacco represent the means of livelihood of a large number of agricultural labourers. National employment surveys by the National Sample Survey Organization (NSSO) place the direct and indirect tobacco workforce in India at approximately 9 million during , representing approximately 2.5 per cent of overall employment in the farmal sector. This includes workers engaged in tobacco farming, manufacturing and the wholesale/retail trade, either full or part time. The vast majority of these jobs, perhaps more than four million, are in bidi manufacture, with women making up half of the tobacco-related workforce. The number of workers directly or indirectly engaged in the tobacco sector has more than doubled over the past 25 years, from 2.88 million in 1983 to roughly 8.2 million in As a commercial crop tobacco forms an important item in the Indian export basket. Also, tobacco sustains number of industries with tobacco as raw material like cigarette, bidi industries and masticator products. The total number of tobacco users in the World has been estimated at 1.2 billion, which is expected to rise to 1.6 billion during 2020 s. Specific types and varieties of Tobacco have been developed for use in cigarette, bidi, cigar, chiroot, hookah, chewing, snuff and hookah paste. Rustica types are used in chewing and snuff whereas tabacum types are used for all purposes. World scenario Tobacco is cultivated in both tropical and sub-tropical climatic parts of the world. About 100 countries produce tobacco, but the major producers are China, India, Brazil, United States, Turkey, Indonesia, Argentina, Zimbabwe and Malawi. Production of tobacco leaf increased by 40% between 1971, during which 4.2 million tons of leaf were produced, and 1997, during which 5.9 million tons of leaf were produced. During 2010, the global area under tobacco cultivation was 5478 thousand hectares producing 9608 thousand tonnes of tobacco leaves with a productivity of 2087 kg/ha According to the Food and Agriculture Organization of the UN, tobacco leaf production was expected to hit 12.1 million tons by 2015.

8 In 2009, the Asian countries had major share in area and production of the tobacco, constituting more than 55 per cent of the world output of tobacco leaves, the major countries being China (38.65 per cent of the total world output), India (8.38 per cent), Indonesia (2.66 per cent), Pakistan (1.66 per cent), Turkey (1.20 per cent), etc. The area under tobacco for China, India, Indonesia and Turkey is 1.25 m.ha, 0.49 m.ha, m.ha and m.ha respectively. China is the major producer of the tobacco crop does not participate in the world trade, due to high domestic consumption. In 2009, African countries like Brazil contributed per cent of the total production, Malawi (1.90 per cent) and Zimbabwe (1.27 per cent). The U.S.A. cultivated tobacco on an area of around 144 thousand hectares with a production of 353 thousand tonnes and a productivity of 2451 Kg/ha. Currently, the productivity of the tobacco in Kg per hectare was found to be highest in Spain (3215 kg/ha) followed by Italy (2857 kg/ha) and Canada (2667 kg/ha). This is overwhelmingly higher than India with a productivity level of 1405 kg/ha. Indian scenario According to Directorate of Economics and Statistics, Government of India, Presently, tobacco is being cultivated in an area of 4 lakh hectares in the country with more than 70 species of tobacco. It occupies the third position in the world with an annual production of about 725 million kgs of the different types grown, flue-cured tobacco, country tobacco, burley, bidi, rustica and chewing tobacco are considered important. In total agricultural exports tobacco share is around 9.4%. Tobacco provides direct and indirect livelihood to 26 million peoples in the country. Tobacco as a crop gives superior net economic returns compared with alternative crops. A well organized marketing system for FCV tobacco through the Tobacco Board assures prompt payment to farmers, which is not the case for many other crops. In India the tobacco is grown more in Andhra Pradesh and Karnataka. The tobacco industry in India includes the production, distribution and consumption of Leaf tobacco, Smoking products such as cigarettes and bidis and Various chewing tobacco products In 2010, India cultivated tobacco on an area of 0.49 million hectares with a production of 0.86 million tones and a productivity of 1760 Kg/hectare. Among the different tobacco types cultivated in India, bidi tobacco forms the biggest chunk (36 per cent) followed by Virginia tobacco (16 per cent), Natu tobacco (9.5 per cent) and Hookah tobacco (7.6 per cent), generating more than Rs crores in the form of excise revenues from all tobacco transaction. Even though, the cultivation of tobacco is spread all over the country, the commercial cultivation of tobacco is concentrated in states like Andhra Pradesh, Karnataka, Gujarat, Maharashtra, Bihar, Tamil Nadu and West Bengal. Cigarette tobacco is mostly cultivated in Andhra Pradesh and Karnataka, whereas bidi tobacco is grown in Gujarat, Karnataka and Maharashtra. Cigar and Cheroot tobacco are also grown in Tamil Nadu, Andhra Pradesh and West Bengal and Chewing tobacco is grown in Tamil Nadu, Gujarat, Bihar, West Bengal and U.P. Hookah tobacco is grown in U.P., and West Bengal. Majority of tobacco growers in India are small and medium farmers having an area under tobacco between 0.5 to 1.5 hectares. Tobacco is mainly grown under conserved soil moisture and monsoon conditions, solely depending on rainfall distribution. A special feature of the domestic tobacco production scene in India is the varietal composition of the produce. India is the only country where the bulk of production consists of numerous non-smoking types of tobacco. The presence of a strong domestic demand for beedi, hookah, and chewing and snuff tobacco necessitates the cultivation of non-cigarette types of tobacco to a relatively large extent. Tobacco cultivation may be forced out of traditional areas due to high value competitive crops and high labour cost.

9 Scenario of Tobacco export Tobacco is largely exported in the form of unmanufactured products rather than manufactured form. In last five years there is tremendous increase of Indian tobacco and its product. Indian tobacco is exported to more than 80 countries over the world. Majority of unmanufactured tobacco is exported to Western European, Eastern European, Middle East, South and South East Asia, African countries, North and South America and Australian countries. In that Western European countries are having a greater demand for the unmanufactured Indian tobacco. These countries are increasing there imports year by year. In the year , Indian tobacco was exported to western countries of about tonnes with the value of crores. Whereas during it has been increased in both quantity (83012 tonnes) and value (Rs crores). In last 10 years the tobacco export both (manufactured as well as unmanufactured products) has increased to tonnes with the export value of crores during as compared to of tonnes with the export value of crores. From last three years Indian government has not fixed the targets of export due to increase of exports which are more than the fixed one. As per the statement given by Tobacco Board the exports will surge up in coming years. Currently the situation in global tobacco market is transforming into a favorable market environment for Indian tobacco exports due to various reasons. The Zimbabwean farm prices also have gone up steeply ahead of the Brazilian prices. Increasing cost of production and the significant amount of export cess imposed on the tobacco exports by the Government of Zimbabwe and Malawi made their tobaccos further expensive.. Karnataka is the second largest producer of tobacco after Andhra Pradesh having 85,000 hectares under tobacco cultivation which, on an average, produces 120 million kg annually. The crop in the state is grown mainly in the southern and malnad taluks such as Mysore, Hassan and Shimoga districts. According to the board's estimates, there are about 40,000 registered growers. Tobacco Board, for the past two years ( and ), had maintained Karnataka's tobacco production at around 100 mkg Major Tobacco products exported from India Manufactured Products Cigarettes Cut tobacco Chewing tobacco Hookah tobacco Bidis Snuffs Cigar The Specific objectives of the study are Unmanufactured Products Flue cured Virginia Burley Sun cured Natu Tobacco leaves steamed Tobacco leaves non steamed Top leaf jutty Lal chopadia 1. To analyze growth in area, production and productivity of tobacco in India. 2. To estimate the trends in exports of tobacco and its products. 3. To study the export performance of tobacco and its products over the years. 4. To analyze the competitiveness and direction of trade of tobacco and its products. Hypotheses for the objectives are 1.There is positive trend in area, production, and productivity of Indian tobacco 2.There is positive trend in export of tobacco and its products. 3. The export performance of tobacco and its products is potential at present. 4. Indian tobacco is export competitive and there is stability in direction of trade for tobacco and its products.

10 Organization of the thesis The entire study has been presented in seven chapters. The first chapter deals with the importance and the current status of the present study. The specific objectives of the study have been indicated. Chapter II deals with the reviews of the relevant research studies connected with the objectives. Chapter III provides the methodology of its main features of the study area and the study out lines. The nature and sources from which relevant data have been collected and the various statistical tools and techniques employed in the study for evaluating the objectives have been discussed. Chapter IV is devoted to results of the analysis of the data through a variety of tables into which relevant details have been compressed and summarized under appropriate heads and presented in the tables. Chapter V provides the discussion on casual relationship between certain variables and the outcome which they produced. Chapter VI briefs the summary of the main findings along with the policy implications that emerged from the findings of the study. Chapter VII, the final chapter list the references cited while undertaking the research. Scope of the study Tobacco is a traditional agricultural export commodity. India stands in third position in production and second position in export of tobacco and its products. Indian tobacco is exported to more than 80 countries over the world. The highest export earnings pertaining to tobacco comes from tobacco leaves, (unmanufactured form).west European countries are having greater demand with yearly increase in imports of Indian tobacco and its products. So there is need to study the trends, competitiveness, direction of trade of Indian tobacco.

11 2. REVIEW OF LITERATURE A review of past research helps in identifying the conceptual and methodological issues relevant to the study. This will enable the researcher to collect relevant data and subject them to sound reasoning and meaningful interpretation. This chapter attempts a brief review of the relevant research literature related to the present study. Keeping in view, the objectives of the study, reviews are presented under the following headings. 2.1 Growth and trend analysis 2.2 Export performance ratio 2.3 Direction of trade 2.4 Export competitiveness 2.1. Growth and trend analysis Growth rate is a measure of past performance of an economic variable. It is commonly used as a summary of a trend in time series data. It is not developed to predict but to describe the trend in a variable over time. Productivity indices, price indices and output series are usually discussed in terms of the changing growth rates over a period of time. Policy decisions are often based on such growth rates which depend on the nature and structure of the data. Sharma and Gandhi (1990) examined the annual compound growth rates of food grain production in India for the period 1950 to It was found that growth rate of production had declined in up to while it modestly accelerated in to However, the overall growth rate per annum was 2.6 per cent which indicated a sustained recovery. Area led growth rate had shown declining potential while yield based growth rate had shown increasing potential during to This necessitated for sustaining yield and technology based growth for the future. Gemtessa (1991) compared the performance of Ethiopian coffee exports during the pre-revolution and post-revolution periods. The exponential growth model of the form Y t = ab t was employed. The results showed that export growth in the pre-revolution period was lower (1.51 %) when compared to the post-revolution period (1.77 %). Choudhary and Aziz (1992) examined the feasibility of rice exports in trade with wheat import in Bangladesh. It indicated that the need for such a trade arises from the likely surplus of rice that might be generated in the future due to a higher growth rate of production of the rice than its consumption. Further, it also arises due to the deficit of wheat from the stagnation of production against a higher growth rate of its consumption. Pal (1992) in his analysis on the agricultural exports from India during the period 1970 to 1989 observed that the compound growth rates of export earnings from all agricultural products comprising food and animal products, beverages and tobacco, vegetable oils, etc. was estimated at 6.67 per cent per annum. The growth of export earnings from fish and fishery products was at an average annual rate of per cent while the export earnings from forest products was found to be stagnant during the last two decades. The export earnings from agricultural products increased because of the rise in unit value Patel.et.al (1992) studied trends and variability in Area, production and Productivity of Tobacco in India. The results indicated that major growing states except Gujarat state there had not been very encouraging trend in area, Production and Productivity. Non traditional states like Orrisa had the higher growth rate of Area and Production than the major tobacco producing countries. The over all India growth rates in production and productivity had been found positive and significant. Veena (1994) analysed the growth of Indian coffee exports for the period using exponential function of the form y = ab t. She found that exports of plantation type coffee exhibited a compound growth of 3.6 per cent per annum, while Arabica grew at 3.0 per cent. Robusta exports registered a compound growth of 10 per cent.

12 Jeromi and Ramanathan (1993) examined the growth of world pepper market for the period from 1975 to Among the exporting countries, Sri Lanka recorded the highest annual compound growth rate of per cent. This was mainly due to its low base in the initial years. Positive and statistically significant growth rate was recorded in the case of India. In contrast, the growth rate in total exports from the other producing countries was statistically non-significant. The growth rates of pepper imports ranged from a negative level of 2.56 per cent for Argentina to a high and positive level of per cent for Saudi Arabia. Laxminarayana (1993) analysed the growth performance of silk goods export such as sarees, dress materials, readymade garments, carpet and other silk exports apart from total silk exports for the period to The exponential form of the function was employed to estimate the growth rates. He found that there has been a significant increase in the growth rates of export of all silk variety both in terms of quantity and value during the study period. This growth rate was attributed to tremendous increase in the production of silk under the influence of intensive production and efforts such as increasing the area under the mulberry cultivation, improving the productivity and also by improving the technology in silk reeling and weaving. Singh (1993) analysed the growth rate in total Indian food grain production during the last 40 years. Total food grain production has increased by 236 per cent with an annual growth rate of 2.74 per cent during the period to Average production increased by 72 per cent between the period to (pre-green revolution) and to (post-green revolution period). Tripathy and Gowda (1993) computed the growth in groundnut production in Orissa during the post green revolution period ( to ) using the growth model, 1n Y = 1n a + t 1n b + u. The study showed that area was the dominant source of growth in output during the post green revolution period and per hectare yield was almost stagnant. Jalajakshi (1994) analysed the growth of shrimp exports from India for the period from 1966 to Exponential model of the type Y = ab t was used to work out the growth rates. Foreign shrimp exports recorded a positive growth rate due to high demand in the importing countries. The negative growth rate observed for dried and canned shrimps were attributed to declining demand in the importing countries and increased cost of production in India. Veena et al. (1995) studied the growth in coffee production and exports from India for the period from 1965 to 1990 using an exponential function of the form Y = ab t. Arabica, Robusta and instant coffee were considered for the analysis. The results revealed that all types of coffee have experienced increase in unit price and in growth rates. Instant coffee, due to a bilateral agreement experienced a slower growth rate. Nagaraja (1997) studied the growth in export of mango from India during the year to He reported that the export of fresh mangoes exhibited a compound growth rate of 27.5 per cent per annum while the value registered a compound growth rate (CGR) of 16 per cent per annum. The unit value in rupees registered a growth of 11.5 per cent per annum and while in dollars it was 3.5 per cent per annum. Ananthi (2000) analysed the growth of area production, productivity and export of Indian Non-basmati and basmati rice. The growth rates were calculated by sub-dividing the study period into to as first period and to as second period. The area, production and productivity showed positive trend. For the export, the study period considered was to for Basmati and non-basmati rice. The growth rate was also positive and significant. Ashalatha (2000) analysed the growth rate in cashew in two periods; period-i, from to and period-ii, from to It was observed that the growth rate of area, production, productivity, kernel export, raw cashew import, cashew nut shell liquid value and cashew nut shell liquid - unit value of export were showing positive trend but the cashew nut shell liquid quantity exported showed non-significant negative growth. Jayesh (2001) studied the production and export performance of pepper and cardamom in south India. He found that all the south Indian states except Karnataka (-0.47 %) and Tamil Nadu (-1.62 %) recorded significant growth in area and production of pepper and in case of cardamom, all the states recorded a negative growth in area, while the

13 productivity and production showed significant growth. A positive growth was found in the export quantity, value and unit value of pepper. But a negative growth was recorded in the export of cardamom. Jha (2002) studied India s tobacco exports Recent trends and Implications. The results indicated that tobacco showed a positive and increasing trend in exports of tobacco and showed significance at 5 per cent level. The new polices should be framed in order to increase the exports with increase in revenues. Mamale Desai (2002) analyzed the export growth of mangoes from India to different countries using the exponential model of the form y= a bt. He observed that the Hong-Kong depicted negative growth, but it was not significant. The possible reason that could be attributed for this phenomenon is firstly the increased imports from Pakistan and Sri Lanka. The second reason would be the changing over the political scenario i.e., from capitalized to communist governed economy led to the changes in the import policies. But export value growing at positive rate, the possible reason could be the inflation over the years which have resulted in to a positive growth in value terms inspite of negative growth in quantity of mango exports. Rajesh et al. (2002) studied the trend in export of major spices in India for the period to and found that black pepper registered a positive annual growth rate of 2.38 per cent in quantity and per cent in value. While large cardamom registered per cent of export quantity and 21.4 per cent export value, ginger registered 4.05 per cent growth in quantity and 10, 15 per cent in value. Turmeric export registered 4.14 per cent in quantity and per cent in volume during the period under study. Phuke et al. (2004) analyzed the export potential of banana in India for period of to , linear growth model, Y^= a + b x and log linear equation, log Y^= log a + log b were used to work out growth rates. At All India level, the highest area and production was recorded in the year , whereas, productivity was the highest in The compound growth rate increase in area of the country was 2.19 per cent per annum during study period. Prajneshu and Chandran (2005) computed the growth rate of total food grain production in India during the period 1980 to 2001 by comparing monomolecular, logistic and gompertz growth models. They suggested that the compound growth rates should be computed by first identifying the model that describes satisfactorily the path followed by the response variable over time. Hence, the exponential model which \vas proposed in 1964 may be replaced by more realistic growth models like monomolecular, logistic and Gompertz models because they are "mechanistic models" in which parameters have specific biological interpretation unlike "empirical models" like polynomial or regression models. They found that monomolecular model was inappropriate for describing the data set because the standard errors of estimates were very high, where as logistic model had performed slightly better than Gompertz model. Compound growth rates were respectively obtained as 2.36 per cent and 2.38 per cent. They concluded that during the past four decades, not only non linear estimation procedures have been developed but even software packages like SPSS, SAS, SPLUS and GENSTAT are also readily available to accomplish the task, therefore there is hardly any justification for not using more realistic nonlinear growth models for computation of compound growth rates. Smita and Patil (2006) studied the trends in export of grapes from India. The compound growth rate for quantity of grapes exported was per cent per annum. With respect to value obtained from export of grapes, the corresponding compound growth rate indicated an increase of 22 per cent per annum. Thanuja (2006) analyzed the export performance and competitiveness of ginger from in India for the period of to The study period is divide in to Pre-WTO period ( ) and Post-WTO period ( ).The finding indicates that area under ginger was increased at 0.73 per cent per annum and production increased at 2.07 per cent during pre- WTO ( to ) period. Whereas during the post-wto period the growth rate for area and production was increased at the rate of per cent and per cent respectively.

14 Jose and Jayasekhar (2008) studied the growth trends in area, production and productivity of Arecanut in India during the period from 1971 to It revealed that the area and the production of Arecanut in India increased tremendously at the rate of 2.2 per cent and 3.2 per cent respectively. The rate of increase in both area and production is mainly due to favourable price prevailed during the period. Sharad and Shekhar (2008) studied the status of silk production in India during the period from to It revealed that the pattern of growth in area under mulberry cultivation has increased with significant rate of 0.25 per cent. The production and productivity of raw silk showed high significant growth of 5.06 per cent and 4.80 per cent respectively. The production of raw silk has increased mainly due to high yielding mulberry varieties and silk worm breed. Geetalakshmi (2011) conducted a study on Mangoes : New varieties to step exports. The study revealed that the major destination of Indian mangoes are Bangladesh (33.20 per cent), Saudi Arabia (22.61 per cent) and UAE (19.61 per cent) in terms of quantity. The actual export of mangoes to Bangladesh recorded an increase in share from 6 per cent to 33 per cent of total exports during the period to Exports to Japan have shown very high compounded annual growth rate both in terms of quantity (33.87 per cent) and quality (33.25 per cent). India s fresh mango exports could be improved by focusing on producing varieties that are demanded by foreign consumers. It is important for mango producing countries to concentrate on products that offer them comparative advantages in most cases labour-intensive products. Biswas and Kumar (2011) reported in the article Revolution of Mango production that during the year India had an area of 2.1 million hectare under mango with a production of 12.7 million tonnes and productivity of 5.5 tonnes/ha. India ranked first in mango production in the world. But due to certain limitations, mango productivity is declining in the country. In the traditional low density cultivation, per ha plant population in mango orchard ranges from In such situation, mango trees become very big, which make it difficult to perform the needed cultural operations, like training, pruning, disease pests control etc. As a result, irregular bearing of fruits becomes the rule rather than an exception. Low yield or no yield is also common due to alternate bearing. Poor nutrient and water management are also very important factors to improve the needed productivity. High-tech horticulture known as high density planting (HDP), has come into vogue, which is capable of removing the limitations of mango productivity in India. 2.2 Export Performance ratio Export performance ratio is a method to analyze performance of the export product over the years. Pandey (2000) studied the export performance in Tea, Coffee and Tobacco. The study revealed that Coffee and Tobacco were the efficient crop to export as the revealed comparative advantage was more than unity rather than Tea. Hyma jyothi et al.(2002) conducted a study on Indian mango and grape exports with an objective to study the competitiveness and comparative advantage of mango and grape exports from India. Secondary data on export of mangoes and grapes were collected from various sources and were analysed using Balassa s export performance ratio (EPR). The findings of the study revealed that EPR s has comparative advantage in export of mangoes and a grape was low. Arunakumari et al. (2005) conducted a study on comparative advantage and competitiveness of oil seeds/ oils exports and imports in India. Secondary data on oil seeds/ oil exports/ imports quantities from/ to India and domestic prices, international prices and cost of cultivation etc were collected from various sources and were analysed using Balassa s export performance ratio (EPR). The findings of the study revealed that EPR s has comparative advantage in export of groundnut, castor, sesame, safflower and castor oil. Mathura(2007) studied Export performance and competitveness of tomato and its products.the values with less than one with declining trend was observed in processed tomato for the year After 1997 there was an increasing trend which indicates improvement in the export competitiveness of India in tomato and its products over the time.

15 Rai(2008) studied Competitiveness and Export performance of cucumber from India. The results revealed that for the period (1991 to 2005) India has been highly competitive in the export of cucumber. This competitiveness has been increasing continuously with the passage of time. In all the years the value showed more than unity indicating India should concentrate more on exporting of cucumber. Nalini (2009) studied performance, competitiveness and determinants of gherkin and processed gherkin from India. The results indicated that India is a competitive in the export of these products. In the study period the results were more than one with gherkin as a competitive product in the international market Export competitiveness A market share approach is considered to assess the degree of competitiveness between a country's product and foreign competitors' product in an importing market. Such an approach appears especially favorable where varieties of the product exist and are identifiable with the country of origin in the minds of purchasers of an importing country. Mamatha (1996) calculated the Nominal Protection Coefficient s (NPC) for Indian coffee by taking United States coffee price as the reference price. The NPC of coffee types namely plantation, Arabica and Robusta under the exportable hypothesis were 1.3, 1.3, and 1.85 respectively in1995, indicating that Indian coffee exports were not competitive and it was not efficient exportable commodity. Datta (1996) calculated NPC, EPC and DRC for Indian basmati and non-basmati rice. The results revealed that India had very slender competitive strength in export of basmati rice. However the DRC analysis revealed that Indian exporters had some amount of buffer, because India requires spending of only Rs 0.89 on non-tradable inputs in order to earn one rupee of foreign exchange in case of non-basmati rice also these three ratios were below one indicating that the Indian rice is competitive in International markets. Maji (1998) estimated NPC, EPC and DRC of Indian rice. The results showed that NPC was less than unity i.e. the country can potentially benefit from export and obtain higher International price. The EPC was also less than one indicating that rice producers were not protected through policy incentives. DRC ratios were also less than one, which means that a domestic resource cost can earn a much higher value on foreign exchange through exports. Ravi and Reddy (1998) examined the export competitiveness of selected agricultural commodities with particular reference to Karnataka using nominal protection coefficient technique. Among the six commodities studied, Karnataka lacked comparative advantage in most of the crops except cotton. The exports potential of Jowar, maize, groundnut and sunflower were significantly low. Even though, Karnataka was the leading coffee exporting State, domestic market was found to be more favorable compared to the export market. Unlike cereals and oilseeds, Karnataka had an absolute advantage in case of cotton exports. Mahesh (2000) indicated that under importable hypothesis, the NPC and DRC were 0.71 and 0.66, respectively and under exportable hypothesis, the NPC and DRC were 0.98 and 0.93 respectively, implying that Indian tea exports were competitive and also good import substitute. Sudha (2000) worked out the DRC for rose cultivated in 38 Hi-Tech rose units located in Bangalore urban and Bangalore rural districts of Karnataka and adjoining Dharmapuri district of Tamil Nadu during The results revealed that the DRC for the industry as a whole was 0.52, which reveals a high export competitiveness of Hi-Tech rose in the study area. The DRC ratio suggested the efficient use of resources by the rose cultivating Hi-Tech units. It was inferred that as long as the price of output and the proportion of the traded components of inputs remain at the present level, it is highly competitive to produce rose for export purposes. Jayesh (2001) used the nominal protection coefficient technique for the export competitiveness of Indian pepper. Under the exportable hypothesis, the nominal protection coefficient value were found to be lesser than unity (0.849) in Calicut and (0.817) in Sirsi markets, indicating that the Indian pepper is competitive in the international market and which is an efficient export oriented commodity.

16 Phuke et al. (2004) analyzed the export potential of banana in India for period of to Nominal Protection Coefficient (NPC), NPC = DP/BP used to measure the export competitiveness of banana. India did not enjoy comparative advantage in the total banana export in as NPC is more than unity. India enjoyed comparative advantage in export of banana in the new world trade order (after LPG) to all the countries expect Nepal. Raghavendra (2004) analyzed global competitiveness of exports of important crops from Karnataka State (India) for to (post liberalization period), using the.policy Analysis Matrix, which was decomposed into Effective Protection Coefficient (EPC), NPC and ORC. Crops considered for analysis included rice, maize, groundnut, redgram and cotton. DRC for rice was less than 1 (0.68) during the study period, this implied that the value of domestic resources used up in producing a unit of rice was less than what it could cost to import, therefore India has comparative advantage in producing rice. EPe for rice was less than unity (0.80), an indication that rice production was protected by Government. NPC for rice was less than 1 (0.47), implying that Karnataka had price Competitiveness in rice. Savadatti (2007) analyzed export competitiveness of Basmati rice with the help of Nominal Protection Coefficient (NPC) for the period to Although Basmati rice trend is positive, it is not smooth and steady. Around 60 to 70 per cent of the entire basmati rice exports are going to Saudi Arabia, Kuwait and UAE. The study reveals that there is ample scope for USA, one of the important importers of Basmati rice. The estimated NPC of the basmati rice with respect to USA with an average of 0.82 reveals that basmati rice export is competitive and enjoys advantages in exports. Basmati rice is a good exportable product. There is ample scope to export basmati rice to USA. But there is stiff competition from Pakistan. Yeladhalli and Vilas (2009) studied on Direction of trade and export competitiveness of onion. The study showed that NPC for onion was during under exportable hypothesis while under the importable hypothesis it was This implied that domestic prices received by farmers were below the international prices in India. The DRC ratio worked out to be less than unity (0.23) indicating high export competitiveness of onion. The policy implications in the form of subsidies, simplified export licensing procedures may be directed in view of potential exports for onion from India. Kumar (2010) assessed the export competitiveness of different lives and analyzed the factors affecting the growth of livestock India after liberalization. The liberalization policy initiated in 1991 appeared to have improved the performance of livestock exports. The study revealed that India was competitive in export of meat products, except poultry. The export of buffalo meat has been increasing consistently poor domestic demand has further fuelled its export of mutton did not seem to have much prospects in the short-run, as even the domestic demand was not met by domestic production. Siddaya and Atteri (2010) examined the export competitiveness under the cost compliance horticultural commodities. The NPC, Effective Protection Coefficient (EPC), DRC and Effective Subsidy Co-efficient (ESC) were computed under cost compliance as well as without cost compliance. Except for grapes, NPC, ESC and ORCs were found to be less than unity for fresh and processed fruits and vegetables, implying that the Indian horticultural sector has a comparative advantage in the selected fruits and vegetables. The EPC was more than unity for various fresh and processed fruits and vegetables because the relation between domestic and international input and output prices were not uniform. 2.4 Direction of trade of exports Direction of trade refers to the particular countries and kinds of countries towards which a country's exports are sent, and from which its imports are brought, in contrast to the commodity composition of its exports and imports, thus the pattern of its bilateral trade. This analysis does not only help the exporting country to know the trend in sustaining its existing markets but also to know the shift in market shares from one country to another over time. Gemtessa (1991) analysed the direction of trade using the Markov chain model. The share of Ethiopian coffee exports to USA had drastically declined during the period from 1979 to The loss in the export shares of Ethiopian coffee to USA, France, USSR and other countries were directed to erstwhile West Germany. The study revealed that the Ethiopian coffee exports to Japan, France and Italy had moderately increased. But the share of Saudi

17 Arabia remained stagnant. It was predicted that the market share of Ethiopian coffee exports to West Germany would increase to 32 per cent by 2000 AD mainly because of their preference for Ethiopian mild coffee. Jeromi and Ramanathan (1993) reported that there were significant changes in the direction of pepper exports from India during the period from 1975 to It was observed that nearly 44 per cent of India s pepper exports were directed to former USSR which constituted about 82 per cent of the total pepper import of that country. On the other hand, India not only failed to increase its exports to USA in tandem with increased consumption in that country, but also could not sustain the quantity exported in the past years. Instability of exports was lower in case of former USSR, Italy and Canda and higher for Poland, USA and Czechoslovakia. Laxminarayana (1993) studied the direction of Indian silk exports by first order Markov process. The major importing countries considered for the analysis were USA, West Germany, United Kingdom, France, Italy and Japan. The exports to USA were stable and would remain highly loyal to Indian silk. The probability of export to the United Kingdom, West Germany and Japan switching over to USA was unity which implied that entire quantity of exports to these countries would drift to USA over a period of time. Jalajakshi (1994) analysed the changing pattern of shrimp export between two periods, Period I from 1970 to 1980 and period II from 1980 to The study revealed that during period I, India could not retain its previous market share in European Economic Community (EEC) countries. Nearly 90 per cent of India s share was diverted to Japan and seven per cent to the UK. However, in period II, India could retain its previous market share in EEC countries due to the gradual acceptance of tropical shrimps in these countries. Veena et al. (1994) examined the changing directions of Indian coffee exports in terms of importing country shares over the period from 1965 to 1990 using Markov chain analysis. It was observed that India could not retain its previous market share to USA, Netherlands, Yugoslavia and other importers. However, the actual quantities exported to all these countries have increased which was due to increased quantity of Indian coffee exports. India retained its market share to former West Germany, erstwhile USSR and Italy. The increased market share of the USSR in the seventies and eighties was then threatened by the economic and political upheaval in the region. Diana (1997) used non-stationary Markov chain analysis to explore the linkages between sector specific policy and sector employment in Oregon, USA. Application of the technique to Oregon s forestry sector and national forest policy demonstrates that macroeconomic forces had statistically important effects on employment while national forest policy, measured as timber sold or timber cut does not. These results raises question about forest policy impact analysis and assumptions inherent in national forest policy implementation. Sreenivasa Murthy and Subrahmanyam (1999) measured the dynamics of changes in the exports of onion from India to different countries with the help of a Markov chain model. From one step transitional probabilities, the model is extended to n-step for future forecasting. The results have shown that Malaysia, United Arab Emirates (UAE) and Singapore were having high probability of retention and will continue to be the major importers in future also. As revealed by the low values of probability of retention, Saudi Arabia and others were unstable importers of Indian onion. In the next decade, Sri Lanka and Bangladesh would increase their imports from India though it may come at the cost of UAE. The exports of onion from India would increase to 5.06 lakh tones by AD. Ananthi (2000) analysed the direction of trade of Basmati and non-basmati rice in India using Markov chain analysis. The study period was to The results indicated that in the countries such as Saudi Arabia, UAE and UK showed the probability of getting more share of import at the cost of countries such as Bahrain, Kuwait and USA. In the case of non-basmati rice all the major countries which import Indian rice will lose their share and the probability of the minor countries importing at present may be dominant over the other countries.

18 Balappa Shivaraya (2000) studied the changes in trade directions of export of selected vegetables using Markov chain analysis. The results revealed that UAE and Malaysia were the loyal markets for Indian onion. In case of potato, Sri Lanka and Nepal were found to be the most loyal markets, whereas Bangladesh and Nepal were the most stable importers of Indian fresh tomatoes. Hugar (2002) studied the changes in the share of exports of onion from India to different countries. He has used the Markov model with first order finite Markov chain property to analyze the export shares by countries and forecast the export of onion, which follows stochastic process. The share of export of onion to a particular country at time t was considered as a random variable. Minimum absolute deviations estimation procedure was used to estimate the transition probabilities P ij i.e. probability of share of export to j lh country from i lh country. Using this one step transition probability, shares of major importers of onion from India were compared with observed export shares. One step and five step transition probabilities were also found to predict the export shares of countries for one year and five years after the base year. His results indicated that Malaysia and UAE were loyal markets of onion export from India. Rajesh et al. (2002) studied the direction of trade of major spices from India during pre liberalization period ( to ) and post liberalization period ( to ). The results showed that USA had a high retention power (i.e ) in pre liberalization period for pepper compared to post liberalization period (0.3188). Japan and Saudi Arabia had high transition probability values of and respectively in retaining cardamom export from India during pre liberalization period. Pakistan, Bangladesh and Saudi Arabia had a retention power in ginger trade during post liberalization period with transition probability values of , and 0.548'8, respectively. Nisha (2004) studied the export potential and direction of exports of Indian groundnut. The results of Markov chain indicated that exports are likely to be concentrated in Indonesia and Malaysia. She also studied the size, composition and direction of exports in addition to sanitary and phytosanitary measures stipulated by different countries. Mahadevaiah et al. (2005) studied the changing pattern of raw cotton exports from India during pre reforms period ( to ) and post reforms period ( to 1998~99) using Markov Chain model. The transition probability matrix estimated for both the periods showed that China was the only stable importer of Indian Cotton with retention probability values of and during pre and post reforms periods, respectively.the other traditional importing countries such as Bangladesh, Germany, Indonesia, UK, Japan and Korea. Bhattacharyya and Banerjee (2006) examined the direction of trade of Indian imports and exports Using the gravity model considering panel data of They observed that the number of export destinations more than doubled between 1950 and The top 5 countries continued to account for around fifty per cent of exports throughout the period. By the end of the century about 86 per cent of countries were smalltime export partners absorbing less than 1 per cent of total exports. USA was a very important trading partner of India during that period both in exports and imports while the importance of UK, which was very important in the first two decades since 1950, waned over the years. USSR Was important during the I970s and the 1980s Savdvati (2006) studied the export behaviour of basmati rice using annual time series data covering the period from to The direction of trade and the changes in exports were analysed using Markov Chain Model. She reported that the five major countries importing Indian basmati rice and that the exports would be concentrated in Saudi Arabia and Kuwait in future. Saudi Arabia was one of the stable importers as it reflected high probability of retention at Pramod et al. (2007) analyzed the changing direction of Indian mango exports using Markov chain. It revealed that the USA, UAE and Bangladesh were stable markets for Indian mango while, UK and Saudi Arabia were unstable markets. The increasing share of other countries showed the need to explore and exploit the market potential of other countries.

19 Shivashankar (2008) studied on export performance of dry chillies and its products from India. The dynamics of changes in the export trade was analysed through the estimation of markov chain transitional probability matrix. The revealed that USA is the highly loyal market export of dry chilli with retention probability value In other words, this market retained 60 per cent of its share in the previous period. However, it lost 34 per cent of its share to Sri Lanka. Similarly, Malasiya retained about 51 per cent of its previous share of chilli export from India. Other countries group gained 87.7 per cent from Bangladesh and 28 per cent from USA, in addition to retention of 34.7 per cent of its own share in the previous period. Similarly, Nepal retained about 47 per cent of its previous share in exports of dry chilli from India. Yeladhalli and Vilas (2009) studied on Direction of trade and export competitiveness of onion. Markov chain analysis has been employed to ascertain the direction of trade through transitional probability matrix. The study revealed that Malaysia has shown the increasing trend while UAE has shown a declining trend. UAE and Sri Lanka have been very loyal markets for Indian onion market.

20 3. METHODOLOGY The source and nature of data for the study and the analytical tools employed in the study were presented in this chapter. 3.1 Description of the study area 3.2 Data Collection 3.3 Analytical tools and techniques employed 3.1. Description of the study area Peninsular India has a land mass of 32, sq km with 15,200 km land frontier. India lies to the north of equator between to north latitude and 68.7 to east longitudes. India has a varied temperature ranging between c and c. India s huge agricultural potential is embodied in its size and in its abundance and diverse nature resources, unlike most part of the World which have a cold and hostile winter and a relatively a small proportion of arable land, India is blessed with bounteous nature across vast fertile river plains, Indian cereal and agriculture crops provide another demonstration of her abundance, diversity and opportunity. The area under consideration for analyzing of various Tobacco and its products, whole India was taken into consideration at aggregate level so as to facilitate data compilation and prices in the international market. 3.2 Data Collection The data used for the study is entirely based on secondary source of data. For this study 17 years data were collected i.e. from to The data on area, production and productivity of tobacco were collected from Department of Agriculture and Co-operation, Government of India and Directorate of Economics and Statistics (DES) Bangalore. The year wise data on export of Tobacco products pertaining to quantity and value is compiled from various sources like Tobacco Board, Food and Agricultural Organization (FAO), Agricultural and Processed Food Products Export Development Authority (APEDA) Selection of Commodities: Numerous Tobacco unmanufactured and manufactured products are exported from India. In both, top four commodities are selected based on quantum of export for the study. In unmanufactured products the commodities selected are Flue Cured Virginia, Sun Cured Virginia, Steamed tobacco, Non steamed tobacco. In manufactured products Cigarette, Chewing tobacco, Jarda scented tobacco and Hookah tobacco are selected. 3.3 Analytical tools and techniques employed To fulfill the specific objectives of the study based on the nature and extent of availability of data, the following analytical tools and techniques was adopted Growth rate and Trend Export performance ratio Markov Chain Analyses Nominal Protection Coefficient Growth Rate and Trend Analysis Growth rate on area, production, productivity and exports of tobacco was computed for a period of 17 years from to The linear, log-linear, exponential and power functions are some of the important functional forms employed to study the growth rates. Different functional forms were tried in the past for working out of growth rates in area, production and productivity. Some of the important forms tried were the linear growth model

21 (Y = a+ bt), exponential function (Y = ab t ) and quadratic function (Y = a+bt+ct 2 ). However, it was found that the exponential form of the function Y t = ab t is the better and most fitted one. In the present study, compound growth rates for area, production and productivity of tobacco in country as a whole were estimated by using the exponential growth function (Angles, 2001) of the form, Where, Y t = a b t U t. (1) Y t = Dependent variable for which growth rate was estimated (area, production, yield) a = Intercept, b = Regression coefficient t = Year which takes values from 1, 2 n. U t = Disturbance term in year t. The equation (1) was transformed into log-linear and written as log Y t = log a + t log b + log U t (2) Equation (2) was estimated by using Ordinary Least Square (OLS) technique. The per cent compound growth rate (g) was derived using the relationship (3) Where, g = (antilog b -1) x 100. (3) g = Estimated compound growth rate per annum in percentage. b = Antilog of log b The standard error of the growth rate was estimated and tested for its significance with student s t statistic. For estimating the long-run trend of export tobacco to different nation, the method of ordinary least squares estimate was employed. This method of ascertaining the trend in a series of data involves estimating the coefficient of intercept (a) and slope (b) in the linear functional form. The equation adopted for this purpose was specified as follows, Y t = a + bx + e Where, Y t = Trend values at time t X = Period in years a = intercept parameter b = slope parameter e = Error The goodness of fit of trend line to the data was tested by computing the coefficient of multiple determinations which is denoted by R Export performance ratio (EPR) Export performance ratio is the method to analyze the performance of tobacco and its products over the years. In the present study export performance were computed for a period of 17 years from to

22 Where, X k = Export of selected commodity from a country in a year. X T = Total merchandise export of that country in a year. W k = Export of selected commodity of the world in a year. W T =Total merchandise export of the world in a year If EPR is more than one then the country is having the best performance Markov Chain analyses Annual export data for period to were used to analyze the direction of trade and changing pattern of Indian Tobacco export. The major Indian Tobacco importing countries considered were UAE, Saudi Arabia. Belgium, Korea, Germany, Russia Estimation of the exports was done for the study period using Markov chain analysis. Markov chain analysis is employed to analyze the structural change in any system whose progress through time can be measured in terms of single outcome variable. In the present study, the dynamic nature of trade patterns that is the gains and losses in export of Indian Tobacco in major importing countries was examined using the Markov chain model. Markov chain analysis involves developing a transitional probability matrix P, whose elements, P ij indicate the probability of exports switching from country i to country j over time. The diagonal element P ij where I=j, measures the probability of a country retaining its market share or In other words, the loyalty of an importing country to a particular country s exports. In the context of current application, structural change was treated as a random process with seven importing countries for Tobacco and its products the assumption was that the average export of Tobacco and its products from India amongst importing countries in any period depends only on the export in the previous period and this dependence is same among all the periods. This is algebraically expressed as Where, n Ei P + e Ejt = [ t 1 ] ij jt i= 1 E jt = exports from India to the j th country in the year t E it-1 = exports of i th country during the year t-1 P i j = the probability that exports will shift from i th country to j th country e jt = the error term which is statistically independent of E it-1 n = the number of importing countries The transitional probabilities P ij, which can be arranged in a (c x n) matrix, have the following properties. n i= 1 P Ij = 1 and 0 P I j 1 Thus, the expected export share of each country during period t is obtained by multiplying the exports to these countries in the previous period (t-1) with the transitional probability matrix. The probability matrix was estimated for the period to Thus transitional probability matrix (T) is estimated using linear programming (LP) framework by a method referred to as minimization of Mean Absolute Deviation (MAD). Min, OP* + I e

23 Subject to, Where X P* + V = Y GP* = 1 P* 0 P* is a vector of the probabilities P I j O is the vector of zeros I is an appropriately dimensional vectors of areas e is the vector of absolute errors Y is the proportion of exports to each country. X is a block diagonal matrix of lagged values of Y V is the vector of errors G is a grouping matrix to add the row elements of P arranged in P* to unity Nominal Protection Coefficient (NPC) Nominal Protection Coefficient is a direct measure of competitiveness of a country towards a commodity in the context of free trade. The Nominal Protection Coefficient is defined as the ratio of the domestic price to the world reference price of the commodity under consideration. Symbolically, Where, NPC = Pd/ Pr NPC = Nominal Protection Coefficient Pd Pr = Domestic Price of the Commodity in question = World Reference Price of the Commodity in question i.e., what the farmer would have received in case of free trade. A decision criterion is if NPC is less than one, then the commodity is competitive (under importable hypothesis it is considered a good import substitute and under exportable hypothesis, it is worth exporting). If NPC is greater than one, the commodity is not competitive (not a good import substitute or not worth exporting). The domestic price is normally the wholesale market price of commodity in the selected market. The reference price is the international price adjusted for transfer cost, marketing and trading margins including the processing charges necessary to make the commodity equivalent to the internationally traded commodity. These coefficients are estimated under two scenario viz., import scenario and export scenario. Under importable scenario, the competition is deemed to take place at the domestic port and therefore international and domestic transportation cost accord a natural protection to the domestic commodity. Exportable scenario, the competition is assumed to take place at foreign port and therefore domestic commodity has to be extra efficient to the tune of international transportation costs at least. These two hypotheses therefore yield different estimates of protection. The interpretation of the coefficient is as follows: Under importable hypothesis: Under exportable hypothesis: NPC < 1 an efficient import substitute NPC < 1 an efficient export substitute

24 In the present study Nominal Protection Coefficient (NPC) was estimated under the exportable hypothesis for the year Under exportable hypothesis, selected agricultural commodities are assumed to compete with other member SAARC countries. Nominal Protection Coefficient and International Reference Prices in the case of exportable hypothesis are calculated as shown in the Table 3.1. For the study the price which prevailed in May 2011 was took for the study. 3.4 Concepts and terms used in the study 1. Flue Cured Virginia Tobacco: Before the manufacture of the product tobacco is cured with the help of flame. 2. Sun Cured Virginia Tobacco: Before the manufacture of the product tobacco is cured with the help of sunlight. 3. Steamed Tobacco: For the curing of tobacco with the aid of steam it is cured. 4. Cigarette: A little fine tobacco rolled in paper for smoking. 5. Chewing Tobacco: Raw tobacco which is used for chewing without adding of any flavors. 6. Jarda scented Tobacco: Chewing type of tobacco added with different flavors. 7. Hookah Tobacco: A paste prepared from tobacco and smoked in hookah. Table 3.1 Estimation of Nominal Protection Coefficient (NPC) (Exportable Hypothesis) Sl. No. Particulars Place Unit Value 1. Wholesale Price Domestic Market Rs./ Qtls Marketing Margin (5%) of wholesale price Port Clearing & Handling Charges Rs./ Qtls. Rs./ Qtls. 4. FOB Price (1+2+3) Domestic Market Rs./ Qtls..5. Freight Charge International Market Rs./ Qtls. 6. 2% of Wholesale Price Rs./ Qtls. 7. Landed Cost ( 4+5+6) US $ Rs/ Qtls 8. Exchange Rate 1$ = Rs 9. CIF Price (Row 7 / Row 8) US $ / Qtl 10. Reference Price US $ US $ / Qtl 11. NPC (Row 9/Row 10)

25 4. RESULTS Keeping in view the objectives of the study, the data collected from different sources were analyzed employing appropriate techniques. The results of the analysis are presented under the following headings: 4.1 Growth in area, production and productivity of Tobacco 4.2 Trend in Exports 4.3 Export performance Ratio 4.4 Competitiveness and Direction of Trade 4.1 Growth rate in area, production and productivity of tobacco in India Compound annual growth rates were computed to comprehend the trends in the area planted, production and productivity of tobacco in India. The study period taken was from to The exponential growth functions were employed to find the differences in growth rates for the above said period as depicted in Table 4.1. The growth of tobacco crop is presented in Fig.1. The area under tobacco in India was 0.38 million hectares in and it reached to 0.49 million hectares with a growing rate of 0.79 per cent per annum during During the same period the production growth was at the rate of 1.67 per cent annually which reached from 0.57 million tons in ( ) to 0.86 million tons in ( ). In both area and production the growth rates were however insignificant. With respect to productivity, it was found that a significant growth rate of 1.04 per cent was noticed in tobacco crop significant at 1per cent level of probability. The productivity was 1486 kg/hectare in which increased to 1760 kg/hectare in Trends in exports of Tobacco and its products Trends in export of unmanufactured tobacco products Linear trend was fitted in order to ascertain the long run movement of unmanufactured tobacco products export to different countries from India and the results are presented in the Table 4.2 It is evident from the Table that export of Flue Cured Virginia tobacco to Belgium has increased at the rate of MT with time variable explaining this increase to the extent of 70 per cent R 2 value. Amongst the countries considered for export of flue cured virginia tobacco, the annual increase in export was found to be maximum with this country. Next to Belgium is Russian republic where the annual increase in export was MT with time explaining to an extent of 53 per cent. Germany, South Africa and Korean republic are also showing increasing trend of , and MT per year with the R 2 value of 0.59, 0.73 and 0.51 respectively In case of sun cured virginia tobacco the trends in export to various countries was found to be increasing except to Germany. Maximum increase in export was with South Africa with a annual increasing rate of MT (R 2 value is 0.15). Followed to South Africa, Korean Republic, Belgium and Russian Republic also registered increasing trend of imports of Indian sun cued Virginia tobacco with annual increase rate of 30.91,30.59and MT with R 2 value of 0.31, 0.29 and 0.53 respectively. However export of the this product to Germany witnessed a decreasing trend which decreased rate of 7.16 MT per year. However the time variable explaining this behavior of exports is only to the extent of 7 per cent.( R 2 value 0.07) Export of steamed tobacco to various countries considered register an increasing trend over the period of study. Among them Belgium is found to be maximum importer with the increasing rate of MT per year with the time explaining the increase at the extent of 74 per cent (R 2 ). Followed to Belgium, Russian republic registered the increasing rate of imports of MT as time variable explaining its increase to the extent of 51 per cent (R 2 ). Germany, South Africa and Korean Republic were too had the growing trend of , and MT per year respectively with the R 2 value of 0.74,0.77 and 0.65.

26 Table 4.1 Growth Rate of Area, Production and Productivity of Tobacco in India ( ) Year Area (Million hectares) Production (Million tones) Productivity (kg/hectare) CAGR(%) 0.79 (NS) 1.67(NS) 1.04* R Note: CAGR- Compound Annual Growth Rate * denotes significant at 1per cent. NS- Non significant

27 1 0.9 Area Production Yield Area and production Yield (kg/ha) Years Fig. 1. Trend in area, production and productivity of tobacco crop in India Fig. 1. Trend in area, production and productivity of tobacco crop in India

28 Table 4.2 Trends in Export of Unmanufactured tobacco from India Countries Intercept Slope R 2 Flue Cured Virginia Tobacco Belgium Korean Republic Germany South Africa Russian Republic Sun Cured Virginia Tobacco Belgium Korean Republic Germany South Africa Russian Republic Steamed Tobacco Belgium Korean Republic Germany South Africa Russian Republic Non Steamed Tobacco Belgium Egypt Russian Republic Netherland Yemen Republic

29 Another type of unmanufactured tobacco, non steamed tobacco which was exported to various countries during the study period registered a negative annual growth except in case of Belgium. The exports of the product increased at a rate of MT annually during the study period. Russian Republic registered maximum declining growth of MT per year followed by Egypt, Netherland and Yemen Republic were annual declining trends at ,98.43 and MT respectively. The R 2 value with respect to Russian republic was very high (0.81), but with respect to other countries the R 2 value was very less Trends in export of manufactured tobacco products Linear trend was fitted in order to ascertain the long run movement of manufactured tobacco products export to different countries from India and the results are depicted in the Table 4.3 Cigarette exports to USA registered an increasing trend at the rate of 0.51 MT and the time explaining to the extent of 9 per cent. Malaysia and Singapore were too had the increasing trend of 0.48 and 0.28 MT with time explaining this variable to the extent of 0.04 and 0.12 R 2 value. UAE and Russian Republic showed declining in imports at the rate of 1.27 and 8.36 MT with time explained this change to the extent of 0.09 and 0.21, R 2 value. Another type of manufactured product chewing tobacco which was exported to various countries during the study period registered a positive trend. UAE was having the maximum increase in exports at the rate of MT annually with time explaining this increase to an extent of 63 per cent (0.63 R 2 value). Followed to UAE, Saudi Arabia registered the increasing trend at MT as time variable explaining this extent to 58 per cent (0.58 R 2 value). Afghanistan, Malaysia and Singapore were too having the increasing trend of 15.27, 8.57 and 0.04MT having the R 2 value of 0.30, 0.45 and 0.01 respectively. In case of Jarda scented tobacco UAE is having the maximum imports at the increasing rate of 3.06 MT every year which was explained by the time variable to the extent of 21 per cent R 2 value. Followed by Afghanistan with 1.90 MT having the R 2 value of Saudi Arabia and Malaysia were also having the increasing trend of 0.70 and 0.43MT with the R 2 of 0.09 and 0.24 respectively. USA is the only country showing declining trend at the rate of 0.02MT which was explained by the time variable to the extent of 2 per cent R 2 value. Hookah tobacco exports to various countries registered a positive growth except with South Africa. Saudi Arabia is increasing its imports at the rate of MT as time variable explaining to an extent of 2 per cent R 2 value. Followed to Saudi Arabia is Yemen Republic having the annual increase in export of MT with R 2 of Brazil and China were also having the increasing trend at the rate of 5.59 and 5.93 with corresponding R 2 value of 0.26 and 0.42 respectively. South Africa is the only country which is showing declining trend of 3.20 MT which was explained by the time to the extent of 10 per cent R Export performance of Tobacco and its products In order to evaluate the export performance of tobacco and its products export performance ratio was used for the time period to The export of tobacco and its products from India and in the world and the total exports of various products from India and the world were utilized to arrive at the export performance ratio Export performance ratio for unmanufactured tobacco products Table 4.4 depicts the export performance ratio for unmanufactured tobacco products. It can be observed that the ratios for all the products showed positive results with an increasing movement except with some products. Export performance of Flue Cured Virginia tobacco was increasing with a performance ratio of three to ten which revealed that Flue Cured Virginia tobacco had three times more relative share than the total world share in the respective exports since This ratio is steadily increasing over the years and it has increased to 10.2 during In the case of Sun Cured Virginia tobacco the performance ratio increased from 4 to 9.6 during the period, while in case of steamed tobacco this ratio ranged from 6.2 to 13 over the period. For non steamed tobacco the export performance ratio was 4.2 in 1995 and steadily increased over the years and had attained a value of 13 by 2011.The export performance ratio for unmanufactured tobacco products are presented in Fig 2.

30 Table 4.3 Trends in export of Manufactured tobacco products from India Countries Intercept Slope R 2 Cigarette USA Malaysia Singapore UAE Russian Republic Chewing tobacco UAE Saudi Arabia Afghanistan Singapore Malaysia Jarda Scented Tobacco USA UAE Afghanistan Saudi Arabia Malaysia Hookah tobacco Saudi Arabia Yemen Republic South Africa Brazil China

31 4.3.2 Export performance ratio for manufactured tobacco products Table 4.5 reveals the export performance ratio for manufactured products. It can be seen from the table that the ratios for all the products were positive and in the increasing trend. Export performance of chewing tobacco was increasing with the ratio of five to ten which revealed that chewing tobacco had five times more relative share than the world share in the respective exports since from The ratio has been increased to ten times during In case of Cigarette the performance ratio increased form 5.4 to 10.1 during the period. While in case of Hookah the performance ratio increased from 6.3 to 12 having a steady increase over the period. For Jarda scented tobacco the export performance ratio was 3.3 in 1995 and gradual increase over the years and attained a value of 10.7 in The export performance ratio for unmanufactured tobacco products are presented in Fig Competitiveness of tobacco and its products Trade Competitiveness The analysis of export competitiveness in general, indicated that all the countries were found to be competitive for export as it was evident from NPC s with less than unity. The NPCs of selected manufactured and unmanufactured products estimated for exportable hypothesis for the year Flue Cured Virginia Values of NPC for Indian Flue Cured Virginia tobacco exports are presented in the Table 4.6 and Fig 4. Belgium is found to be highly competitive market with NPC value of 0.67 among all exported countries. Russian Republic, Germany, South Africa and Korean republic are having the NPC value of 0.81, 0.87, 0.92 and NPC indicated that FCV is an efficient export product and it is remunerative to export Sun Cured Virginia Values of NPC for Sun Cured Virginia are presented in the Table 4.7 and Fig 5. South Africa is found to be highly competitive market with NPC value of Other countries such as Korean republic, Belgium, Russian republic and Germany are having the NPC value 0.85,0.92, 0.93 and Germany was not a competitive market with its high NPC value of Steamed Tobacco Steamed Tobacco NPC is calculated as presented in the Table 4.8 and Fig 6. Belgium is found to be highly competitive market with NPC value of Russian republic, Germany, South Africa and Korean republic are having the NPC value of 0.72, 0.76, 0.89 and NPC indicated that tobacco steamed is an efficient export product and it is remunerative to export Non steamed Tobacco NPC for non steamed tobacco is calculated as presented in Table 4.9 and Fig 7. Belgium is found to be highly competitive market with NPC value of Yemen Republic, Netherland, Egypt, and Russian Republic are having NPC value of 0.74,0.82,0.88 and Cigarette NPC for cigarette is calculated as presented in Table 4.10 and Fig 8. USA is found to be highly competitive market having the NPC value of Singapore, Malaysia, UAE and Russian Republic are having the NPC value of 0.98, 0.83,0.89 and NPC indicated that cigarette is an efficient export product to export for getting better price Chewing tobacco Chewing tobacco NPC is calculated as presented in Table 4.11 and Fig 9.UAE is found to be highly competitive market with having the NPC value of Saudi Arabia, Afghanistan, Singapore, Malaysia are having the NPC value of 0.81, 0.84, 0.91 and NPC indicated that chewing tobacco is an efficient export product and it is remunerative to export.

32 Table 4.4 Export performance ratio of Unmanufactured tobacco products from India Years Flue Cured Virginia Tobacco Sun Cured Virginia Tobacco Steamed Tobacco Non steamed Tobacco

33 16 Flue Cured Virginia Tobacco Steamed Tobacco Sun Cured Virginia Tobacco Non steamed Tobacco Ratio 2011 Years Fig. 2. Export performance ratio of unmanufactured tobacco products over the years Fig. 2. Export performance ratio of unmanufactured tobacco products over the years

34 Table 4.5 Export performance ratio of Manufactured products from India Years Cigarette Chewing Tobacco Jarda scented tobacco Hookah tobacco

35 14 Cigarette Chewing Tobacco Jarda scented tobacco Hookah tobacco Ratio Years Fig. 3. Export performance ratio of manufactured tobacco products over the years Fig. 3. Export performance ratio of manufactured tobacco products over the years

36 Table 4.6 Nominal Protection Coefficient (NPC) for Flue Cured Virginia tobacco for the year Sl. No. Particulars Unit Belgium Korean Republic Germany South Africa Russian Republic 1 Wholesale price (Mumbai) Rs./ Qtls Marketing margin (5%) Rs./ Qtls Port clearing & handling charges Rs./ Qtls FOB Price (1+2+3) Rs./ Qtls Freight charge Rs./ Qtls Insurance at 2 % of price Rs./ Qtls landed cost ( 4+5+6) Rs/ Qtls Exchange rate 1$ = Rs CIF price (row 7 / row 8) US $ / Qtl Reference price US $ / Qtl NPC of (row 9/row 10)

37 Wholesale price Landed cost FOB price Reference price Rs. per quintal Belgium Korean Republic Germany South Africa Russian Republic Countries Fig. 4. Composition of NPC for flue cured virginia tobacco exported from India Wholesale price Landed cost FOB price Reference price Rs. per quintal Belgium Korean Republic Germany South Africa Russian Republic Countries Fig. 5. Composition of NPC for sun cured virginia tobacco exported from India

38 Table 4.7 Nominal Protection Coefficient (NPC) for Sun Cured Virginia tobacco for the year Sl. No. Particulars Unit Belgium Korean Republic Germany South Africa Russian Republic 1 Wholesale price (Mumbai) Rs./ Qtls Marketing margin (5%) Rs./ Qtls Port clearing & handling charges Rs./ Qtls FOB Price (1+2+3) Rs./ Qtls Freight charge Rs./ Qtls Insurance at 2 % of price Rs./ Qtls landed cost ( 4+5+6) Rs/ Qtls Exchange rate 1$ = Rs CIF price (row 7 / row 8) US $ / Qtl Reference price US $ / Qtl NPC of (row 9/row 10)

39 Table 4.8 Nominal Protection Coefficient (NPC) for Steamed Tobacco for the year Sl. No. Particulars Unit Belgium Korean Republic Russian Republic Germany South Africa 1 Wholesale price (Mumbai) Rs./ Qtls Marketing margin (5%) Rs./ Qtls Port clearing & handling charges Rs./ Qtls FOB Price (1+2+3) Rs./ Qtls Freight charge Rs./ Qtls Insurance at 2 % of price Rs./ Qtls landed cost ( 4+5+6) Rs/ Qtls Exchange rate 1$ = Rs CIF price (row 7 / row 8) US $ / Qtl Reference price US $ / Qtl NPC of (row 9/row 10)

40 Jarda scented tobacco NPC for jarda scented tobacco is calculated and presented in Table 4.12 and Fig 10. UAE is found to be highly competitive market among countries exported having the NPC value of Afghanistan, Saudi Arabia, Malaysia and USA are having the NPC value of 0.83, 0.88, 0.91 and 0.93.NPC indicated that jarda scented tobacco is an efficient export product and it is remunerative to export Hookah tobacco NPC for hookah tobacco is calculated and presented in Table 4.13 and Fig 11. Saudi Arabia is found to be highly competitive market having the NPC value of 0.81.Yemen Republic, China, Brazil and South Africa are having the NPC value of 0.86,0.88,0.92 and NPC indicated that hookah tobacco is an efficient export product and it is remunerative to export Direction of trade The dynamics of export trend is an important aspect in evolving export oriented programmes in order to enhance or sustain current export trends. Hence, the knowledge of changing export trade across the destinations is of prime importance. The dynamics of changes in the export trade of selected manufactured and unmanufactured tobacco and its products was studied by estimating Markov transitional probability matrix. The probability of retaining the previous period market share is interpreted by studying the diagonal elements of transitional probability matrix. Transitional probability matrix was obtained for the study period by using the actual proportion of exports to countries and rest of the world. These probability of retention values were further utilized to know the future trade direction for each of the country considered by estimating the exports to the destination countries upto Flue Cured Virginia tobacco Table 4.14 indicated that the other countries and Russian republic were found to be a stable market for Indian FCV tobacco retention of market share among the importing countries were high in these countries with a retention of previous trade to the extent of 73 per cent and 58 per cent respectively. Belgium and South Africa are moderately unstable trade destinations as reflected there low transition probability values 39 and 17 per cent respectively. However the transition probability value for Korean Republic and Germany for import of Flue cured Virginia tobacco from India was found to be zero per cent each. Other countries retained 73 percent of its previous market share.it gained 83 per cent of its market share from Germany, 53 per cent from South Africa, 27 per cent from Belgium, 18 per cent from Russian Republic during the study period. It lost 17 percent of market share to Belgium, 6 percent to Korea, 2 per cent to Germany and South Africa respectively. During the transition period Russian Republic gained 35 per cent of its market share from Korean Republic, 17 per cent from Germany and 2 per cent from Belgium. It lost 18 per cent of its market share to other countries, 22 per cent to Germany and 2 per cent to South Africa Belgium retained 39 percent of market share. It gained 65 percent of market share from Korean Republic, and 17 percent from other countries. It lost 27 percent of its market share to other countries, 15 percent to south Africa, 14 percent to Germany, 4 percent to Korean Republic and 2 percent to Russian Republic Korean Republic entirely lost its market share to Korean republic 65 per cent and Russian Republic 35 per cent. It gained 24 percent of market share from South Africa, 6 percent from other countries and 4 percent from Belgium. Germany also lost entire of its market share during the study period to other countries 83 per cent and Russian republic 17 per cent. It gained 22 per cent from of its market share from Russian Republic 14 per cent from Belgium, 6 per cent from South Africa and 2 per cent from other countries during the period. The export projections of FCV tobacco to major importing countries were computed up to 2015 using the transitational probability of retention values and presented in the Table 4.15.The export projections revealed that the total export of FCV tobacco to Belgium would be around MT by constituting 21 per cent of total export of FCV tobacco from India.

41 Table 4.9 Nominal Protection Coefficient (NPC) for Non steamed Tobacco for the year Sl. No. Particulars Unit Belgium Egypt Russian Republic Netherland Yemen Republic 1 Wholesale price (Mumbai) Rs./ Qtls Marketing margin (5%) Rs./ Qtls Port clearing & handling charges Rs./ Qtls FOB Price (1+2+3) Rs./ Qtls Freight charge Rs./ Qtls Insurance at 2 % of price Rs./ Qtls landed cost ( 4+5+6) Rs/ Qtls Exchange rate 1$ = Rs CIF price (row 7 / row 8) US $ / Qtl Reference price US $ / Qtl NPC of (row 9/row 10)

42 35000 Wholesale price Landed cost FOB price Reference price Rs. per quintal Belgium Korean Republic Russian Republic Germany South Africa Countries Fig. 6. Composition of NPC for steamed tobacco exported from India Wholesale price Landed cost FOB price Reference price Rs. per quintal Belgium Egypt Russian Republic Netherland Yemen Republic Countries Fig. 7. Composition of NPC for non-steamed tobacco exported from India

43 Table 4.10 Nominal Protection Coefficient (NPC) for Cigarette for the year Sl. No. Particulars Unit USA Malaysia Singapore UAE Russian Republic 1 Wholesale price (Mumbai) Rs./ Qtls Marketing margin (5%) Rs./ Qtls Port clearing & handling charges Rs./ Qtls FOB Price (1+2+3) Rs./ Qtls Freight charge Rs./ Qtls Insurance at 2 % of price Rs./ Qtls landed cost ( 4+5+6) Rs/ Qtls Exchange rate 1$ = Rs CIF price (row 7 / row 8) US $ / Qtl Reference price US $ / Qtl NPC of (row 9/row 10)

44 Table 4.11 Nominal Protection Coefficient (NPC) for Chewing tobacco for the year Sl. No. Particulars Unit UAE Saudi Arabia Afghanistan Singapore Malaysia 1 Wholesale price (Mumbai) Rs./ Qtls Marketing margin (5%) Rs./ Qtls Port clearing & handling charges Rs./ Qtls FOB Price (1+2+3) Rs./ Qtls Freight charge Rs./ Qtls Insurance at 2 % of price Rs./ Qtls landed cost ( 4+5+6) Rs/ Qtls Exchange rate 1$ = Rs CIF price (row 7 / row 8) US $ / Qtl Reference price US $ / Qtl NPC of (row 9/row 10)

45 Wholesale price Landed cost FOB price Reference price Rs. per quintal USA Malaysia Singapore UAE Russian Republic Countries Fig. 8. Composition of NPC for cigaratee exported from India Wholesale price Landed cost FOB price Reference price Rs. per quintal UAE Saudi Arabia Afghanisthan Singapore Malaysia Countries Fig. 9. Composition of NPC for chewing tobacco exported from India

46 Table 4.12 Nominal Protection Coefficient (NPC) for Jarda scented tobacco for the year Sl. No. Particulars Unit USA UAE Afghanistan Saudi Arabia Malaysia 1 Wholesale price (Mumbai) Rs./ Qtls Marketing margin (5%) Rs./ Qtls Port clearing & handling charges Rs./ Qtls FOB Price (1+2+3) Rs./ Qtls Freight charge Rs./ Qtls Insurance at 2 % of price Rs./ Qtls landed cost ( 4+5+6) Rs/ Qtls Exchange rate 1$ = Rs CIF price (row 7 / row 8) US $ / Qtl Reference price US $ / Qtl NPC of (row 9/row 10)

47 Table 4.13 Nominal Protection Coefficient (NPC) for Hookah tobacco for the year Sl. No. Particulars Unit Saudi Arabia Yemen republic South Africa Brazil China 1 Wholesale price (Mumbai) Rs./ Qtls Marketing margin (5%) Rs./ Qtls Port clearing & handling charges Rs./ Qtls FOB Price (1+2+3) Rs./ Qtls Freight charge Rs./ Qtls Insurance at 2 % of price Rs./ Qtls landed cost ( 4+5+6) Rs/ Qtls Exchange rate 1$ = Rs CIF price (row 7 / row 8) US $ / Qtl Reference price US $ / Qtl NPC of (row 9/row 10)

48 Wholesale price FOB price Landed cost Reference price Rs. per quintal USA UAE Afghanisthan Saudi Arabia Malaysia Countries Fig. 10. Composition of NPC for jarda scented tobacco exported from India Wholesale price FOB price Landed cost Reference price Rs. per quintal Saudi Arabia Yemen Republic South Africa Brazil China Countries Fig. 11. Composition of NPC for hookah tobacco exported from India