India: Effects of Tariffs and Nontariff Measures on U.S. ... - USITC

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Private m<strong>and</strong>is Some private companies are attempting to set up their own m<strong>and</strong>is, where permitted under state law. 17 Advantages <strong>of</strong> owning a m<strong>and</strong>i include (1) the ability to grade purchased crops (quality discovery), since middlemen from state m<strong>and</strong>is typically dilute the quality <strong>of</strong> the crops they sell; (2) the ability to determine the current price for a commodity (price discovery); (3) increased pr<strong>of</strong>its from the bundling <strong>of</strong> services with physical inputs such as the provision <strong>of</strong> seeds <strong>and</strong> fertilizers to farmers; (4) savings on fees to brokers <strong>and</strong> traders; (5) savings on labor, storage, <strong>and</strong> transportation costs; <strong>and</strong> (6) guaranteed access to warehouse space. According to industry sources, this advantage is important, because when bumper crops occur in <strong>India</strong>, the government may break contracts with private firms for the limited space available in public warehouses. A company that owns a private m<strong>and</strong>i, <strong>and</strong> thus the warehouses, avoids this problem. 18 Contract farming Contract farming creates a direct link between farmers <strong>and</strong> food processors or restaurants for the supply <strong>of</strong> a particular commodity <strong>of</strong> a certain quality at a specified price. Contract farming ensures purchasers a stable supply at a specified quality <strong>and</strong> lowers the transactions costs <strong>of</strong> dealing with large numbers <strong>of</strong> small-scale farmers. 19 Some contracts give the purchaser control over the seeds, other inputs, <strong>and</strong> farming techniques used by farmers. Contracts can benefit farmers by increasing their access to inputs, lowering business risk, <strong>and</strong> providing a better-paying market for a differentiated product. Some U.S.-based firms, as well as other multinational producers <strong>and</strong> domestic firms, have been involved in contract farming. Examples include PepsiCo’s contracts with farmers in Maharashtra <strong>and</strong> Karnataka for potatoes <strong>and</strong> Agrocel’s contracts for organic basmati paddy rice in Haryana. 20 Successful contract farming arrangements have been those in which the contracting firm has (1) established a long-term relationship with the farmers, with additional financial incentives for loyalty to the contract; (2) set up a third-party arbiter with the ability to enforce the contract; <strong>and</strong> (3) contracted for a product that <strong>of</strong>fers few marketing opportunities beyond the contracting purchaser (e.g., mint grown in Punjab). 21 In other cases, the contracting system has not been as successful. Problems with contract farming have arisen because the contracts are not legally enforceable, <strong>and</strong> breaches by both farmers <strong>and</strong> firms have occurred. 22 Further Distribution Government Procurement Government purchases account for a large share <strong>of</strong> all agricultural sales each year. For example, either the Food Corporation <strong>of</strong> <strong>India</strong> (FCI), a government-owned entity, or a state agency acting on its behalf is obligated to buy rice <strong>and</strong> wheat at the MSP. The 17 Industry representative, interview by Commission staff, New Delhi, <strong>India</strong>, May 8, 2009. 18 Ibid. 19 Industry representative, interview by Commission staff, New Delhi, <strong>India</strong>, May 6, 2009. 20 Singh, “Leveraging Contract Farming,” 2007, 4–10. 21 Ibid., 7–10. 22 Industry representative, interview by Commission staff, Mumbai, <strong>India</strong>, May 29, 2009; industry representative, interview by Commission staff, New Delhi, <strong>India</strong>, June 2, 2009. 7-6
government bought more than one-half the estimated marketed surplus <strong>of</strong> rice <strong>and</strong> wheat (the two largest <strong>India</strong>n food crops by volume) produced in marketing year 2008/09. The <strong>India</strong>n government purchases farm products for two purposes: maintaining stocks for food distribution to the poor <strong>and</strong> ensuring a minimum price to those farmers by buying from farmers at MSPs. The FCI procures food grains (wheat <strong>and</strong> rice), <strong>and</strong> under the Department <strong>of</strong> Agriculture <strong>and</strong> Cooperation’s Price Support Scheme, the National Agricultural Marketing Federation (NAFED) purchases oilseeds, pulses, <strong>and</strong> cotton. 23 Under the Market Intervention Scheme, NAFED <strong>and</strong> designated state agencies purchase perishable commodities at the request <strong>of</strong> the states, if prices fall below the respective MSPs. 24 Government purchases <strong>of</strong> rice <strong>and</strong> wheat at the MSPs set market prices for these two commodities. This price support encourages higher production levels <strong>of</strong> wheat <strong>and</strong> rice. By contrast, most <strong>of</strong> the other crops subject to MSPs sell at higher market prices, rendering MSPs ineffective in stimulating more <strong>India</strong>n production. In addition, industry representatives state that crops other than rice <strong>and</strong> wheat receive less government support than the two main staple crops. 25 Many <strong>of</strong> the 25 crops with announced MSPs do not have any designated government agency that purchases product at the MSP. If prices fall below the MSP, the only available recourse is to petition state governments for relief. 26 Wholesale <strong>and</strong> Processors As noted in chapter 4, most agricultural processing in <strong>India</strong> is primary processing such as milling <strong>of</strong> rice, oilseeds, <strong>and</strong> pulses, <strong>and</strong> processing accounts for only a small share <strong>of</strong> the total value <strong>of</strong> agricultural production. In contrast, wholesaling accounts for a large share <strong>of</strong> expenditure on agricultural products. 27 Even products such as pulses that undergo only minimal processing change h<strong>and</strong>s multiple times in the marketing <strong>and</strong> distribution chain. Decisions on pricing, transportation across state lines, storage fees, <strong>and</strong> stocking volume are all subject to state regulation, which increases the complexity <strong>and</strong> cost <strong>of</strong> operating within <strong>India</strong>’s marketing <strong>and</strong> distribution system. Consumption Government Distribution The <strong>India</strong>n Public Distribution System (PDS) supplies rationed quantities <strong>of</strong> basic food items (e.g., rice, wheat, sugar, <strong>and</strong> edible oils) at below-market prices primarily to the 23 In 11 states, state agencies procure wheat <strong>and</strong> rice on behalf <strong>of</strong> the central government. Government <strong>of</strong> <strong>India</strong>, Department <strong>of</strong> Food <strong>and</strong> Public Distribution, Annual Report, 2008, 12. 24 Additionally, NAFED <strong>and</strong> the Cotton Corporation <strong>of</strong> <strong>India</strong> are responsible for procurement <strong>of</strong> cotton, <strong>and</strong> the Jute Corporation <strong>of</strong> <strong>India</strong> procures jute. Commodities other than rice <strong>and</strong> wheat are purchased through a decentralized program in the various states. Government <strong>of</strong> <strong>India</strong>, Ministry <strong>of</strong> Finance, Economic Survey, 2009, 180–181. Another central government agency, the Central Warehouse Corporation, <strong>and</strong> 17 state warehousing corporations are involved in the storage <strong>of</strong> food grains <strong>and</strong> other essential commodities. Government <strong>of</strong> <strong>India</strong>, Department <strong>of</strong> Food <strong>and</strong> Public Distribution, Annual Report, 2008, 90, 52. 25 Industry representatives, interviews by Commission staff, May 26 <strong>and</strong> 28, June 4 <strong>and</strong> 5, 2009. 26 Government <strong>of</strong> <strong>India</strong>, Ministry <strong>of</strong> Finance, Economic Survey, 2009, 180–181. 27 Industry representative, interview by Commission staff, Mumbai, <strong>India</strong>, June 1, 2009; Khan, The Domestic Food Market, n.d., 9. 7-7
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United States International Trade C
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U.S. International Trade Commission
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Abstract This report describes <str
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TABLE ES.1 India:
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U.S. agricultural products face str
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U.S. Foreign Direct Investment U.S.
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CONTENTS Page Abstract ............
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CONTENTS―Continued Chapter 6 <str
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CONTENTS―Continued Figures 1.1. <
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ACRONYMS AND TERMS AAY Antodaya Ann
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ACRONYMS AND TERMS—Continued RGGV
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TABLE 1.1 India: A
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FIGURE 1.1 India:
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India’s central
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Despite their weak economic pr<stro
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Approach Current India</str
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Bibliography Birner, Regina, Surupt
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World Bank. Agriculture for Develop
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FIGURE 2.1 India:
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TABLE 2.1 India: A
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FIGURE 2.3 India:
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premium); (2) India</strong
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include government export restricti
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TABLE 2.3 India: A
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FIGURE 2.6 India:
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Exports by Major Trading Partner <s
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CHAPTER 3 Domestic Consumption Over
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TABLE 3.2 India: P
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more likely to have been exposed to
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BOX 3.3 Indian Con
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TABLE 3.3 India: T
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are expected to see income growth <
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Food Preferences India</str
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Regional Variation Geographic <stro
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CCC. “Know India
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CHAPTER 4 Indian A
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For most crops, however, In
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The Farm Sector soybeans 29 —but
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Food processing in India</s
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BOX 4.1 The Central Government’s
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BOX 4.2 Does the Minimum Support Pr
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August 3, 2009, New Delhi announced
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known as zamindars, have doubled or
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that the PFA Act was strictly enfor
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———. Bharat Nirman: A Time-Bo
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Organisation for Economic Co-operat
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CHAPTER 5 TARIFFS Overview
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sensitive. They include vegetable f
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Page 105 and 106: India also reporte
Page 107 and 108: Reference Prices Reference prices,
Page 109 and 110: Landing Fees <stro
Page 111 and 112: Simulated Effects
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Page 117 and 118: Bibliography Acharya, Keya. “Thor
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Page 121 and 122: CHAPTER 6 Nontariff</strong
Page 123 and 124: foreign sources. 6 For example, SPS
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Page 127 and 128: BOX 6.2 Wheat—Continued Yet, <str
Page 129 and 130: perpetuated continuously. The impor
Page 131 and 132: notices that must be integrated wit
Page 133 and 134: import corn under the TRQ is too bu
Page 135 and 136: Customs Procedures India</s
Page 137 and 138: Corruption Interests within <strong
Page 139 and 140: TABLE 6.2 India: E
Page 141 and 142: Bibliography American Apparel <stro
Page 143 and 144: Mattson, Jeremy W., Won, W. Koo, <s
Page 145: ———. 2009 National Trade Esti
Page 148 and 149: TABLE 7.1 India: C
Page 150 and 151: First Point of Sal
Page 154 and 155: approximately 65 million households
Page 156 and 157: 7-10 TABLE 7.2 India</stron
Page 158 and 159: poor communications infrastructure
Page 160 and 161: limited popularity with farmers bec
Page 162 and 163: The lack of infras
Page 164 and 165: found that 39 percent of</s
Page 166 and 167: Bibliography Banerjee, A. Dairying
Page 168 and 169: Tiwari, Shri Rajendra Kumar. “Pos
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Page 174 and 175: Food Processing and</strong
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Page 178 and 179: For processing of
Page 180 and 181: BOX 8.3 Restrictions on Foreign Joi
Page 182 and 183: Under certain circumstances, FDI ca
Page 184 and 185: commenced. States tend to be quick
Page 186 and 187: Bibliography Bahn, Niti, an
Page 188 and 189: International Center for Alcohol Po
Page 190 and 191: Structure of the <
Page 192 and 193: BOX 9.1 The UPOV System for Plant V
Page 194 and 195: that the public sector in I
Page 196 and 197: Whether this situation will soon ch
Page 198 and 199: The U.S.-India Bus
Page 200 and 201: eggplant, which began field trials
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Maskus, Keith E. “Intellectual Pr
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APPENDIX A REQUEST LETTER
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The Honorable Sham L. Arano
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cprice-sewell on PRODPC61 with NOTI
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APPENDIX C HEARING WITNESSES
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ORGANIZATION AND WITNESS: Tuttle Ta
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Summary of Views <
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advertising and pr
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highest in the Asia-Pacific region.
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to U.S. exports to India</s
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transparent sanitary regulations th
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hotel and catering
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Western Pistachio Association 26 In
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APPENDIX E POTENTIAL FOR U.S. AGRIC
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E-4 TABLE E.1 India</strong
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APPENDIX F INDIAN AGRICULTURAL PROD
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TABLE F.1 India: A
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FIGURE F.1 India:
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is in nonirrigated areas with yield
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Consumption India
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efrigeration. This characteristic i
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70 percent of tota
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eportedly preferred in southern <st
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Cotton During MY 2003/04-2007/08, <
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Government of <str
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APPENDIX G UNION AND STATE/UNION TE
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certain agricultural goods in the p
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Bibliography Chaulan, Shri U.K. “
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Simulation Framework The effects <s
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Producers determine the optimal sup
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Applied ad valorem tariff equivalen
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We considered the possibility that
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Estimation of <str
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Bibliography Anderson, Kym, Mariann
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