COMPARATIVE ADVANTAGE IN EXPORT OF FOODGRAINS IN INDIA: A POST-REFORMS ANALYSIS

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1 COMPARATIVE ADVANTAGE IN EXPORT OF FOODGRAINS IN INDIA: A POST-REFORMS ANALYSIS Kerobim Lakra, Lokesh Kumar Meena, Shoji Lal Bairwa, Arpita Gangwar and Saket Kushwaha Department of Agricultural Economics, Institute of Agricultural Sciences, Banaras Hindu University, Varanasi , kerobim.l@gmail.com Reduction of trade barriers creates competitive pressures and the potential for technology transfer lead to productivity gains and restructuring of an economy toward its comparative advantage. India has undertaken a series of economic reforms towards opening up of the economy in the decade of the nineties. Notable among these has been the extensive effort to liberalize its international trade. It is therefore expected that trade liberalization in India would have led to changes in the composition of exports to reflect India s comparative advantage in the global economy. Further, a country s comparative advantage in international trade may be influence by differential rates of change in accumulation of production factors or due to the increased trade integration of other countries. Indian food grains have come to occupy a supreme position in the global market over the years. Today, India is a major supplier of several food grains like rice, wheat, barley, maize, sorghum, millets and pulses to the international market. However, the country faces fierce competition from other major players in the field, both the existing and new entrants in the fray. Ironically, the major challenge is from within Asia itself where countries like China, Malaysia, Philippines, Thailand, Singapore and Indonesia among others pose a big threat to Indian agricultural products. The demand and supply situations in the Asian continent have undergone a rapid transformation due to the growth of the world economy and lowering of trade barriers (Aksoy and Beghin, 2005). An economic upheaval, which took place in most of the South-East Asian countries, has resulted in the creation of a huge supply potential in these economies along with an increase in their per capita income and a simultaneous increase in their trade potential. Moreover, some recent developments in the international trade scenario, followed by the establishment of World Trade Organization (WTO) and subsequent liberalization of trade have resulted in the emergence of new powers like Vietnam and Turkey with substantial potential in agricultural trade. The formation of regional trading blocks like ASEAN Free Trade Area (AFTA), Bangkok Agreement, South Asia Free Trade Agreement (SAFTA), etc. has given rise to powerful associations with strong bargaining power and these can significantly influence the demand and supply factors in the global markets. Above all, the Indian economy in itself has undergone a rapid transformation after the inception of economic reforms in India s ratification of the Agreement on Agriculture (AoA) with WTO also had a major impact leading to redefining of its agricultural trade. During this time span, various agricultural commodities exported from India have responded differently and their levels of comparative advantage in the global markets have altered significantly. Hence, it is imperative to have a systematic and well structured analysis to find alterations in the comparative advantage of India vis-a-vis World. The present study was undertaken with the specific objective of determining India s comparative advantage in export of food grains with respect to global exports. Lakra et al., 2013

2 62 SAIIRSTFCPPEB Data and Methodology : In the present study was taken up of selected food grains export value to total export value with the production in India and the country s and world s revealed symmetric comparative advantage has calculated by using the standard formulae. Seven major food grains were selected for the analysis, based on their major shares in India s total food grains exports. The commodities considered were rice, wheat, barley, maize, sorghum, millets and pulses. During the period under study (1991 to 2011), these commodities together accounted for more than 99 per cent of India s total food grains export earnings. The data on exports of selected food grains for were collected from the official website of FAO. Revealed Comparative Advantage (RCA) is a measure of international trade specialization (Balassa, 1965). It identifies the comparative advantage or disadvantage a country has for a commodity with respect to another country or group of countries. It provides a ranking of commodities by degree of comparative advantage and identifies a binary type demarcation of commodities based on the comparative advantage (Balance et al., 1987). Under the assumption that the commodity pattern of trade reflects the inter country differences in relative costs as well as non-price factors, the index is assumed to reveal the comparative advantage of the trading countries. The factors that contribute to movements in RCA are economic, structural, world demand and trade specialization. The advantage of using the comparative advantage index is that it considers the intrinsic advantage of a particular export commodity and is consistent with the changes in an economy s relative factor endowment and productivity. The disadvantage, however, is that it cannot distinguish improvements in factor endowments and pursuit of appropriate trade policies by a country (Batra and Khan, 2005). The original index of RCA was first formulated by Balassa (1965) and can be written as per equation (1) RCA ij = (X ij /X ik )/(X nj /X nk )... (1) Where, X ij = Exports of country i of foodgrain j X ik = Exports of country i of a total foodgrains k X nj = Exports of a world n of foodgrain j, and X nk = Exports of a world n of a total foodgrains k In the present study, country i refers to India, commodity j refers to any of the selected foodgrains, set of commodities k refers to the total foodgrains and n refers to World. When RCA assumed the value greater than unity for a given country in a given foodgrain, the country is said to have a revealed comparative advantage in that commodity. However, RCA suffers from the problem of asymmetry as pure RCA is basically not comparable on both sides of unity. If the index ranged from zero to one, a country is said not to be specialized in a given sector and if the value of the index ranged from one to infinity, the country is said to be specialized. The index is made symmetric, following the methodology suggested by Dalum et al. (1998) and the resultant index is called as Revealed Symmetric Comparative Advantage (RSCA). Mathematically, it can be expressed by the following equation (2) RSCA = (RCA-1) / (RCA+1)... (2) This measure ranges between-1 and +1 and is free from the problem of skewness. A foodgrain is said to have comparative advantage in its exports if the corresponding RSCA value is positive and vice versa. In the present study, the RSCA was used to look into the comparative advantage of the selected commodities. Results and Discussion: After post reforms, various agricultural commodities exported from India have responded differently and their levels of comparative advantage in the global markets have altered significantly.

3 Comparative Advantage in Export of Foodgrains in India: A Post-reforms Analysis 63 Table 1: Revealed Symmetric Comparative Advantage of Agricultural commodities Year Rice Wheat Barley Maize Sorghum Millets Pulses The result of Revealed Symmetric Comparative Advantage of the principal agricultural commodities in India presented in Table 1 and the Figure 1-7 shown the comparative advantage, world s export value and India s export value of selected agricultural commodities (see in Appendix -I). Appendix -I: Total Export of foodgrains of India and World for 1991to 2011 (in 1000 $) Year India World Source: Rice: RSCA Values of rice exports and rice exports from are presented in Table 1 and figure 1 respectively, which revealed the comparative advantage of India and World. After the post reforms, growth of rice exports from India is declined as compare to World. Indian rice exports showed varying levels of comparative advantage in different years of the study period. In 1991, the estimated value of RSCA was 0.73, which slightly declined to 0.6 in 2011 as same result was

4 64 SAIIRSTFCPPEB found by Shinoj and Mathur ( 2008). Therefore, it can be concluded that India enjoyed a comparative advantage in rice exports, though at varying levels. Figure 1: Exports value of rice and trends in RSCA estimates of rice exports from Wheat : The results presented in Table 1 and Figure 2 clearly depict that India experienced a comparative disadvantage in export of wheat in all the years under consideration and had negative RSCA values. The RSCA estimate for the year 1991 was which points towards a quite unfavourable status of Indian wheat exports in the global market. The situation has get worse over the years, and RSCA value was during Figure 2: Exports value of wheat and trends in RSCA estimates of wheat exports from Barley: Growth of barley exports from India is not much improved and export value reported maximum in the year 2007 (99.67M$). India s comparative advantage in export of barley seemed to dwindle during various years after economic liberalization. RSCA value was in the year 2007 and loosed its advantage with an RSCA value in 2011 (Table 1 and Figure 3). A gradual decline in India s comparative advantage had been depicted for exports of barley. Figure 3: Exports value of barley and trends in RSCA estimates of barley exports from Maize : From the Table 1 and Figure 4, it revealed that growth of maize exports from India was larger as compare to world but experienced a comparative disadvantage in export of maize in all the years under consideration and had negative RSCA values. The RSCA estimate for the year 1991 was -1 which points towards a quite unfavourable status of Indian maize exports in the global market. The situation has

5 Comparative Advantage in Export of Foodgrains in India: A Post-reforms Analysis 65 hardly improved over the years, and RSCA value was below zero (-0.16) even during Figure 4: Exports value of maize and trends in RSCA estimates of maize exports from Sorghum : Exports value of sorghum from India is increasing after 2006 as shown in Figure 5. The exports of sorghum from India did not enjoy any comparative advantage till the year However, by the year 1994 and 2010, India was at a better position with a positive RSCA value of 0.11and 0.02 (Table 1). Figure 5: Exports value of sorghum and trends in RSCA estimates of sorghum exports from Millets: The results presented in Table 1 and Figure 6 clearly depicted that exports value of millets from India is increasing after 2002 and experienced a comparative disadvantage in export of millets in all the years under consideration and had negative RSCA values in two years. The RSCA estimate for the year 1998 and 1999 were and respectively which points a quite unfavorable status of Indian millets exports in the global market. The situation had hardly improved over the years, and RSCA value was positive except two years. Given the current status, considerable efforts are needed to make India a competitive exporter of millets in future. Figure 6: Exports value of millets and trends in RSCA estimates of millets exports from Pulses: The computed RSCA values for India varied from positive to negative over the years and indicated its comparative position in pulses exports. Moreover, the comparative edge which India exhibited during the initial years of liberalization, fluctuating over the years, with the index gradually improved from in 1991 to 0.22 in 1997 (Table 1 and Figure 7). A mixed trend was observed in India s position

6 66 SAIIRSTFCPPEB of comparative advantage with occasional ups and downs. However, the Indian pulses did not enjoy a comparative advantage throughout the study period and its position rather worsened gradually over the years. Figure 7: Exports value of pulses and trends in RSCA estimates of pulses exports from Conclusions : The study had shown that exports of various foodgrains from India had responded differently in terms of comparative advantage during the post-reforms period. India had enjoyed a comparative advantage in rice exports but had depicted a slightly declining trend over the years. In case of wheat exports, negative comparative advantage was observed over the years. Worse condition was reported in exports of barley and had level best negative comparative advantage for all years. Comparative disadvantage was observed in export of maize over the year but improving condition was notified. Except in years 1994 and 2010, negative comparative advantage was measured in exports of sorghum. Export of millets had positive comparative over the years except in year 1998 and India s status in exports of pulses had not been very comfortable. Although pulses had positive comparative advantage in few years but it could not be attributed to India s comparative advantage in the global market. References : Aksoy, M.A. and Beghin, J.C. (2005). Global Agricultural Trade Policies, Global Agricultural Trade and Developing Countries, Manas Publiacations, New Delhi, pp Balance, R.H., Forstner, H. and Murray, T. (1987). Consistency tests of alternative measures of comparative advantage, Review of Economics and Statistics, Vol. 69, pp Batra, A. and Khan, Z. (2005). Revealed comparative advantage: An analysis for India and China, ICRIER Working Paper No. 168, New Delhi, pp Balassa, B. (1965), Trade Liberalisation and Revealed Comparative Advantage, The Manchester School of Economics and Social Studies, Vol. 33(2), pp Dalum, B.K., Laursen, K. and Villumsen, G. (1998). Structural Change in OECD Export Specialization Patterns: De-specialization and Stickiness, International Review of Applied Economics, Vol. 12, pp Kanaka, S. and Chinadurai, M. (2012). A Study of Comparative Advantage of Indian Agricultural Exports, Journal of Management and Science, Vol. 2, No. 3, Sept., pp Shinoj, P. and Mathur, V.C. (2008). Comparative Advantage of India in Agricultural Exports vis-à-vis Asia: A Post reforms Analysis, Agricultural Economics Research Review, Vol.21 (1), pp