Gherkin and Pomegranate Cultivation
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Horticulture is an important component of agriculture accounting for a very significant share in the Indian economy. Rising consumer income and changing lifestyles are creating bigger markets for high-value horticultural products in India as well as throughout the world. Among these, the most important high-value export products are fruits and vegetables. This study was conducted to analyze the comparative advantage and competitiveness of pomegranate and gherkin which are the important foreign exchange earner among fruit and vegetable crops exported from India.
The primary data was collected from Tumkur and Bijapur district of Karnataka, India and secondary data was collected from concerned government institutions, APEDA and also from exporters of fruits and vegetables. The Policy Analysis Matrix (PAM) was selected as the analytical tool to analyse the export competitiveness, comparative advantage, and the degree of government interventions in the production and export of gherkin and pomegranate. The policy distortions were measured through indicators of PAM. Garret ranking technique was used to analyse the constraints in the production and export of the selected crops.
EPC of Gherkin (0.5) and pomegranate (0.45) values which found to be less than one indicates that producers are not protected through policy interventions. Whereas DRC (0.27 & 0.28) and PCR (0.43 & 0.59) values of Gherkin and Pomegranate respectively shows positive, social as well as private profit which indicates that, India has a competitive and comparative advantage in their production. The result for Garret ranking in case of gherkin shows that skilled labour and lack of superior quality are the major constraints in production and export of gherkin respectively. In case of pomegranate non availability of skilled labour, high incidence of pest and diseases, lack of transportation facilities, high residual effect of pesticide are the major constrain in production and export.
The overall result shows that the cultivation as well as export of gherkin and pomegranate is economically profitable and efficient.
Key Words: Gherkin, Pomegranate, PAM, EPC and DRC
List of Acronyms
|APEDA||Agricultural and Processed Food Products Export Development Authority|
|CIF||Cost Insurance and Freight|
|DRC||Domestic Resource Cost|
|EPC||Effective Protection Coefficient|
|FAOSTAT||Food and Agriculture Organization Statistics|
|FOB||Free On Border|
|FYM||Farm Yard Manure|
|HEIA||Horticulture Export Improvement Association|
|NHB||National Horticulture Board|
|NPCI||Nominal Protection Coefficient on Inputs|
|NPCO||Nominal Protection Coefficient on Outputs|
|NPV||Net Present Value|
|PAM||Policy Analysis Matrix|
|PCR||Private Cost Ratio|
|UAE||United Arab Emirates|
|UNCOMTRADE||United Nations Commodity Trade Statistics|
|UNFAO||United Nations Food and Agriculture Organization|
|USA||United States of America|
Indian agriculture is vested with the herculean responsibility of feeding over more than one billion people. Out of total, 72% of India's population live in rural areas, further three-fourth of the rural populations depend on agriculture and allied activities for their livelihoods. The present growth in agriculture in India is hassle with problems most importantly, agricultural growth slowed down to 2.1% between 1998-99 and 2004-05. It is largely due to a decline in the food grain sector that grew at merely 0.6%. Given the high dependence of the poor on agriculture, the stagnation in this sector is currently threatening to stall poverty reduction in India (Reddy, 2007).
Given the present scenario, the immediate question to be addressed is how agricultural growth can be accelerated. The question can be answered through by diversifying the consumption pattern towards high value agricultural commodities in general and high value horticultural products in particular such as fruits and vegetables. In recent years there has been a great deal of interest among policymakers and trade analysts in the role of horticultural products as a principle means of agricultural diversification and foreign exchange earnings in developing countries. Horticultural products have high income elasticity of demand as income goes up the demand raises rapidly. It grows especially in middle and high income developing countries. As people are more cautious on health and nutrition, there is a paradigm shift from high fat, high cholesterol foods such as meat and live stock products to low fat and low cholesterol foods such as fruits and vegetables. As a result, the world has changed its attention towards high value agricultural products. Hence, it is crucial to be competitive in the world market to reap the potential gains of increased and growing world demand for horticultural products such as fruits and vegetables. Thus, the purpose of the present study attempts to evaluate the consequences of international trade and competitiveness of Indian horticulture with special reference to pomegranate and gherkin crops. In the recent past, these two crops got high export potential and earned good foreign exchange.
1.2 Studies on export of fruits and vegetables
There are many studies related to export of horticultural crops especially fruits and vegetables from India. Chiniwar (2009) explained the numerous opportunities and challenges of the horticulture sector and observed that there is a tremendous potential for Indian pomegranates in the global market. He examined the growth of pomegranate exports from India. The study revealed that the growth of pomegranate exports from India is moderate in comparision to the potential for its exports. Tamanna et al. (1999) examined the export potential of selected fruits from India by using Nominal Protection Coefficient (NPC). The results indicate that the exports of Indian fruits are highly competitive in the world market. Nalini et al. (2008) observed that India has made tremendous progress in the export of cucumber and gherkin products during the past 15 years (1990-2005). The export has increased by about 129 times with an impressive annual compound growth rate of 37.46 percent, as against only 4.38 percent in the world market. An increasing and high value of Revealed Comparative Advantage (RCA) and a positive and increasing value for Revealed Symmetric Comparative Advantage (RSCA) have indicated high potential for their export. One percent increase in volume of international trade in cucumber and gherkin may increase the demand from India by 5.96 percent. This indicates that India is highly competitive in the export of cucumber and gherkin. It has ample scope to further increase its export. Gulati et al. (1994) analyzed the export competitiveness of selected agricultural commodities and identified the constraints in the export of fresh fruits, vegetables, processed fruits and vegetables.
The above studies are related to export performance, growth, and constraints of fruits and vegetables. Most of these studies focused on aspects pertaining to export of fruits and vegetables. There are no studies on export policy especially related to efficiency and comparative advantage in world market. Therefore, the aim of the present study is to analyze the export competitiveness of pomegranate and gherkin by using Policy Analysis Matrix (PAM). The study has a high scope because competitiveness has become a key issue in the international market for export development of fruits and vegetables.
1.3 Research objectives
In the present study, the export competitiveness of high value horticultural crops of India is analyzed. To be very precise, the study analyzes the competitiveness of gherkin and pomegranate in the world market. It also compares the advantages and constraints in the export of these crops with the following objectives and proposed hypothesis, which will be tested based on the results and conclusion.
- To assess the export competitiveness of Gherkin and Pomegranate
- To examine the production and export constraints of Gherkin and Pomegranate
- - Export of gherkin and pomegranate are competitive in international markets
1.4 Structure of the thesis
The study contains the results of the analysis of export competitiveness of horticultural crops in India. In the present study, opportunities are analyzed, constraints in production and export of gherkins and pomegranates from India. We further analyze the competitiveness and comparative advantage of these two crops in international market. The detailed information of this analysis is discussed in the following sections of the study.
The first section of the thesis gives us an introduction and background on the nature of the problem, facts on the dynamics and underlying causes diversifying the consumption pattern of high value horticultural commodities. Further, a brief overview of existing studies on Indian agricultural and horticultural growth, export performance, and constraints will be discussed. The research question is broken down into specific objectives and a possible hypothesis has been put forth.
The second section of the thesis will give a general overview of fruit and vegetable scenario in the world as well as in India. The section also explains the importance of selected fruit and vegetable by considering production, export and foreign exchange earnings which will help us to understand the export competitiveness of these crops from India.
The third section deals with methodological framework which deals with the concepts and competitiveness of high value horticultural crops from India focusing on the application of PAM model for the study. In the same chapter, the current literature and outline of the major definitions for competitiveness and comparative advantage are studied. The above proposed model will be used as a tool to address the research objectives followed by data description.
Fourth section highlights the findings of the research from the proposed model using collected information on pomegranate and gherkin cultivation, and their export. Finally, the proposed hypothesis is tested and the results inferred.
The final section summarizes the whole research findings and provides meaningful policy implications.
2. Scenario of fruits and vegetables in India and the world
2.1 World scenario of fruits and vegetables
2.1.1 High value agricultural production
Rising consumer income and changing lifestyles are creating bigger markets for high value agricultural products throughout the world. Among these, the most important high value export sector is horticulture, especially fruits and vegetables. The growing markets for these products present an opportunity for the farmers of developing countries to diversify their production out of staple grains and raise their income. Annual growth rates on the order of 8 to 10 percent in high value agricultural products is promising development (Fig.1), as the production, processing and marketing of these products create a lot of needed employment in rural areas. The rapid growth in high value exports has been part of fundamental and broad reaching trend towards globalization of the agro food system. Dietary changes, trade reform and technical changes in the food industry have contributed to the growth of high value agriculture and trade (World Bank, 2008).
2.1.2 World production of fruit and vegetables
The production of fruit and vegetables all over the world grew by 30 percent between 1980 to 1990 and by 56 percent between 1990 to 2003. Much of this growth occurred in China where production grew up by 134 percent in 1980 and climbed to 200 percent by 1990 (UNFAO 2003). At present the world production of fruits and vegetables reached to 512 MT and 946.7MT respectively (Table 1 & 5).
Vegetables: China is currently the world's largest producer of vegetables, with the production 448.9 MT with an area of 23.9 MHA (47%) (Table 1), whereas India is in the 2nd position with the production of 125.8 MT with an area of 7.8 MHA (13%) followed by USA (4%), Turkey (3%) etc (Indian Horticulture Database, 2008) (Fig.2). Among the vegetable crops gherkin is considered for the study as it is one of the most important vegetable all over the world. Table 2 shows the international production of cucumber and gherkin from different parts of the world during 2007-08. China, Turkey, Iran, Russia and USA are the world largest producers of cucumber and gherkin (Table 3), whereas India position in the production is 34th but it reached 1st (Table 3) and 55th (Table 4) position in export of provisionally preserved and fresh cucumber gherkin respectively.
Table 1 Major vegetables producing countries in the world (2007-08)
|Country||Area(000 ha)||Production(000 MT)||Productivity(MT/ha)|
Source: Indian Horticulture Database (2008)
Table 2 International production of cucumber and gherkin (2007-08)
|Country||Production (MT)||Share (%)|
|Iran, Islamic republic||1720000||3.86|
Source: Author, FAO (2008)
Table 3 Major exporting countries of fresh cucumber and gherkin (2007)
|Country||Value (USD)||Share (%)|
Source: Data from Agricultural and Processed food products Export
development Authority (APEDA), India.
Table 4 Major exporting countries of preserved cucumber and gherkin
|Country||Value (USD)||Share (%)|
Source: U.N COMTRADE (2007)
Fruits: World fruit production has steadily risen for the past four years (see Appendix 3 ). Table 5 shows the largest fresh fruit producers from different countries during 2007-08. China is the world's largest fruit producer, producing 19 percent of the world fruits. India ranks second in the list of world producer accounting 12 percent of the world's production followed by Brazil, where 7 percent of the world's fruit was grown. (Figure 3) As production is increasing in China at alarming rate compare to other top producing countries. Production growth almost averaged 6 percent per year in China, while production growth in India averaged 2.73 percent per year. The EU experienced the lower annual growth rate of 0.89 percent. Whereas, the production in USA and Brazil has been relatively constant over the period, with average annual growth rates of 0.61 percent for the former and 0.34 percent for the later. Other countries Mexico, South Africa and Chile have experienced slightly higher average annual production growth rates of 2.12, 2.56 and 1.3 percent respectively over the same period (FAOSTAT 2008). Among all fruits pomegranate is considered for the present study. Figure 4 shows India is the world largest producer of pomegranate with 900 MT (36%) followed by Iran (31%), Iraq (3%), USA (4%) etc. Over the years India's export rate for pomegranate has grown steadily to worth of INR0.61 million (US$13741) in 2007-08 with the share of 1.2 percent (Table 6).
Table 5 Major fruit producing countries in the world (2007-08)
|Country||Area(000 ha)||Production(000 MT)||Productivity(MT/ha)|
Source: FAO & Indian Horticulture Database (2008)
Table 6 Pomegranate export from different parts of the world (2007)
|Country||Value (USD)||Share (%)|
Source: Agricultural and Processed Food Products Export
Development Authority (APEDA), India
2.2 Scenario of fruits and vegetables in India.
Horticulture is an important component of agriculture accounting for a very significant share in the Indian economy. It is identified as one of the potential sector for harnessing India's competitive advantage in international trade. Further it prepares India to achieve an overall trade target of 1% or more in the share of world trade. Meanwhile, making the country self-sufficient in the last few decades, horticulture has played a very significant role in earning foreign exchange through export.
Horticultural crops cover approximately 8.5 percent of total cropped area (20 MHA) (Table 7) with annual production of 207 MT, and productivity of 10.3 MT per hectare during the year 2007-08 (FAO & Indian Horticulture Database 2008). Among the horticultural crops fruits and vegetables play an important role, whereas exports of fruits and vegetables have increased over the years (Table 8). During 2004-05 export of fruits and vegetables was INR 13637.13 million as against INR 24116.57 million during 2006-07 (APEDA, 2008)
Table 7 Area, production and productivity of horticultural crops in India
Source: FAO & Indian Horticulture Database (2008)
Table 8 Export of horticultural produce in India
|Floriculture & seeds||34496||2871||42659||3922||50048||7713|
|Fresh Fruits & vegetables||1296530||13637||1465040||16587||1983873||24117|
|Processed fruits & vegetables||325293||9614||501826||13595||549949||17316|
Source: APEDA, India Note: Qty: MT, value : Million INR
Vegetables: In vegetable production, India is next to China with a production of 125.8 million tonnes from 7.8 million hectares with a share of 13 percent in relation to world production (Table 9). The per capital consumption of vegetables is 120 grams per day (APEDA 2009). In case of Fresh vegetable India's export has been increased from INR 433.14 Crore in 2006-07 to Rs 489.49 Crore in 2007-08. Major Export Destinations of these vegetables are UAE, UK, Nepal, and Saudi Arabia. (APEDA, 2009)
Table 9 Area, production and productivity of vegetable crops in India
Source: FAO & Indian Horticulture Database (2008)
Among all vegetables gherkin is considered for the present study due to following reasons. India's export of gherkin has been steadily increased since 1997-98. It accounts for 24,490 tonnes of gherkins having an export potential of INR 50.27 crore as against 35,242 tonnes worth of INR 69.86 crore in 1999-2000 (Venkatesh, 2003). In recent year gherkin export has been increased to 61.5 million tonnes with a trade value of INR1465.5 million during 2007-08 (UNFAO Export Data, 2009).
2.2.1 Production and export importance of gherkin in India
Gherkin crop is being selected for the present study. It is regarded as HEIA crop especially a hybrid crop. Gherkin cultivation and processing started in India in the early' 90s and presently cultivated over 19,500 acres in the three southern states of Karnataka, Tamil Nadu and Andhra Pradesh. Although gherkin can grow virtually in any part of the country, the ideal conditions required for growth prevail in these three states where the growing season extends throughout the year. It requires adequate water and temperature between 15-36 degree centigrade and the right type of soil. The crop takes 85 days to reach the required maturity level. Productivity is approximately four to five tonnes per acre and the best months are from February to March followed by June to August. India is a major exporter of provisionally preserved gherkin. Table 10 & 11 shows the cucumber and gherkin export from India. In India, Karnataka stands first in export, where cultivation is steadily growing since 2001-02 accounting for a worth of INR 1200 million. During 2006-07 gherkins accounts to INR 3133 million which has been exported (Table 12).
Table 10 Cucumber and gherkin exports from India (2007-08)
|Country||Value( Million INR)||Quantity (Tonnes)||Share (%) )|
Source: APEDA, 2009
Table 11 Preserved cucumber and gherkin exports from India (2007-08)
|Country||Value( Million INR)||Quantity (Tonnes)||Share (%) )|
Source: APEDA, 2009
Table 12 Export performance of gherkin in Karnataka state over the years
|Year||Value (Million INR)|
Source: APEDA, India
Fruits: Fresh fruits production in India cover an area of 5.7 MHA with the production of 63.5 MT in 2007-08 (Table 13). India's total export of Fresh Fruits, except grapes and mangoes was Rs 304.53 Crore in 2007-08. Major export destinations for fresh fruits are UAE, Bangladesh, Netherlands, Saudi Arabia and Nepal.
India is the second largest producer of fruits after China, with the production of 54.4 million tonnes of fruits from an area of 5.6 million hectares. A large variety of fruits are grown in India, of which mango, banana, citrus, guava, grape, pineapple, pomegranate and apple are the major ones (Table 14). Although fruit are grown throughout the country, the major fruit growing states are Maharashtra, Tamil Nadu, Karnataka, Andhra Pradesh, Bihar, Uttar Pradesh and Gujarat. Karnataka is the second largest producer of pomegranates after Maharashtra, which grows about 6 Lakh metric tonnes cultivated in 93,000 hectares (Business standard June 17th 2009)
Table 13 Area, production and productivity of fruit crops in India
|Year||Area(000 ha)||Production(000 MT)||Productivity(MT/ha)|
Source: FAO & Indian Horticulture Database (2008)
Table 14 Area and production estimates of fruit crops in India 2006-07
|Fruit crops||Area (000’ha)||Production (000’MT)|
Source: National Horticulture Board (2008) http://nhb.gov.in/
2.2.2 Production and export importance of pomegranate in India
Pomegranate (Punica granatum L.) is one of the most important commercial fruit crop of India. It was chosen as a symbol for the 18th International Horticultural Congress which was held in India in the year 1970. Though the production of pomegranate is location specific, its consumption is widespread. Pomegranate is an ancient fruit which is commonly known as 'Anar', 'Dalim' and 'matulum', and is a favorite table fruit of tropical and subtropical countries around the world. It is an important fruit crop of arid and semi-arid regions in India. Apart from being a good table fruit, it has therapeutic values and good keeping qualities. Pomegranate belongs to the family Punicaceae and it is thought to be indigenous to the region of Iran, where it was first cultivated around 2000 B.C. later spread to the shores of Mediterranean (Asaph Goor, 1967). Among fruits, pomegranate is the major fruit crop to be exported and main reason attributed are good exports potential and fetched high good foreign exchange. During the period 2007-08 India exported 35175 tons of fruits worth INR 911 million to different parts of the world (APEDA 2009) (Table 15) with an area of 0.1 MHA and production 0.8 MT during 2006-07 (Table, 14). In Karnataka it is cultivated in the districts of Chitradurga, Bangalore, Mysore, Belgaum, Bijapur, Kolar and Tumkur (Anon. 1995). It is the second largest producer with a total area under cultivation around 0.01 MHA with a production of 0.14 MT during 2007-08 (NHB, 2009).
Table 15 Pomegranate exports from India
|Country||Value( Million INR)||Quantity (Tonnes)||Share (%) )|
Source: APEDA, India
3. Methodological Framework
This Section defines the theory and concepts behind export competitiveness of selected fruits and vegetable with special emphasis on policy analysis matrix model to know whether the country has comparative advantage in exporting the commodities or not. It also measures the efficiency and export competitiveness of the selected crops in world market.
3.1 Cost and returns of gherkin and pomegranate production
In this section, different concepts of costs and returns used in the study are presented. Farmers are more informed with the concept of acres rather than hectares. Hence I have also used the same and the conversion of acres to hectares is given below.
2.47106 acres = 1 hectare
3.1.1 Cost of cultivation of gherkin and pomegranate
The total cost is being divided into two components, viz. variable costs and fixed costs in case of gherkin. In case of pomegranate it's divided into three components variable costs, fixed costs and establishment costs.
Pomegranate is perennial crops require huge investment to establish the garden. The period of establishment was considered as one year. The establishment costs include, land preparation costs (ploughing, harrowing, clod threshing, leveling.), fencing (local or electrified), planting layers cost, transport of planting layers, opening of pits (2 x 2 x 2 feet), costs on planting and pit filling, and staking. The above said establishment costs were incurred only during first year.
A. Variable costs
These costs comprised of costs incurred on variable inputs such as seeds, farmyard manure, fertilizers, plant protection chemicals, labor, irrigation, staking materials and interest on working capital. In case of pomegranate other than the above costs pruning cost, weeding cost, harvesting cost, packing cost, cost of transportation of fruits, and the irrigation cost are also included. The computation of different terms of variable cost components is follows. The cost of seeds, fertilizers, Plant protection chemicals was computed by using the actual price paid by the sample farmers. The value of farmyard manure was imputed by considering the rates prevailing in the locality at the time of its application. Irrigation cost includes electricity charges plus maintenance charges paid by the respondents and the same has been apportioned based on the area under the crop concerned. Staking materials includes the cost of wooden poles, threads, which were used for staking the plant. The actual price paid by the farmers was used to compute the cost of staking materials. The cost of labour was computed by taking the wage rates paid by the sample farmers for human labour. The same wage rates were used while computing the imputed cost of family labour. When farmers provide food along with wages, the cost of food was computed based on the estimation of the farmers. Interest on working capital was calculated at the rate of 8 per cent for the duration of the crop, on the total value of seeds, manure, fertilizers, plant protection chemicals, staking materials, human labour (based on the interest rates charged by the financial institutions).
B. Fixed costs
These include depreciation on farm implements and machinery, interest on fixed capital and rental value of land.
(i) Depreciation charges
Depreciation on each capital equipment and machinery owned by the farmers and used for land cultivation was calculated for each individual farmer separately, based on the purchase value using the straight line method. Thus the
Annual depreciation= (Purchase value-Junk value)/(Usefull life of the asset)
The average life of the asset as indicated by each farmer was used in the computation of depreciation. The average value of the asset after its useful life as estimated by respondents was considered for calculation of junk value. The depreciation cost of each equipment was apportioned to the crop based on its percentage use.
(ii) Interest on fixed capital
Interest charges on fixed capital were calculated at the rate of 10 per cent, as fixed deposits in commercial banks would fetch the above mentioned rate of interest. The items considered under fixed capital are implements and machinery. Interest was considered on the value of these assets after deducting the depreciation for the year. No interest was charged on land value since the rental value of owned land was considered. Then the amount so calculated was apportioned to the crop acreage for the duration of the crop.
(iii) Rental value of the land
Rental value of the land was calculated at the prevailing rate per acre per annum in the locality
Gross returns: Gross returns were obtained by multiplying the total product with the price realized.
Net returns: Net returns were obtained by deducting the total costs incurred from the gross returns obtained.
3.2 Measuring of International Competitiveness
Competitiveness is a word and a common terminology applied in any firms, sectors, industries, regions and states there is no single definition for competitiveness which is universally accepted. Murphy stated that competitiveness focus on the sustained increase in productivity in the sector as a result of better business strategies and improved micro and macro economic conditions. Theoretically, competitiveness usually refers to characteristics that permit a firm to compete effectively with other firms across nations.
Measures of competitiveness include either a technical component (productivity or efficiency) or a relative price component (prices of inputs and outputs or private versus social prices) or both (Zawalinska 2000).
Vlachos (2001) stated that international competitiveness has the ability of a country to produce goods and services that meet the demand of international markets, and simultaneously maintain and expand the real incomes of its citizens.
Gorton and Davidova (2001) explained the competitiveness by using the European commission's definition that competitiveness as the ability of a country to increase its share of domestic and export markets where a country has a comparative advantage in a product more so it can produce at a lower opportunity cost than other countries. There are two main factors underlying international competitiveness. The ability to compare in international markets depends upon the price competitiveness or on product quality.
A country is said to have a comparative advantage in the production of tradable good if that countries production is efficient if not it has a comparative disadvantage. The concept of comparative advantage has two meaning efficiency of production is being compared among two or more trading nations, where nations with the lowest opportunity costs are relatively more efficient and have a comparative advantage. The other meaning of comparative advantage is referred to the efficiency of different kinds of production within the domestic economy, which are compared in terms of earnings or savings as a unit of foreign exchange.
In fact, competitiveness and comparative advantage are closely related terms. Competitiveness includes market distortions whereas comparative advantage does not (Frohberg and Hartmann, 1997). According to Kannapiran and Fleming (1999) "competitiveness measures the efficiency of commercial activities of individual producers and firms in the international markets" while "comparative advantage indicates the efficiency of resource allocation at the national level". The recent research on the competitiveness of transition countries, one of the most often cited definition of competitiveness is that of Freebairn (1996) who states that: "Competitiveness is an indicator of the ability to supply goods and services to the location and form. Simultaneously they are sought by buyers, at prices that are as good as or better than those of other potential suppliers, while earning at least the opportunity cost of returns on resources employed". Basically, the definition embodies both concepts. Competitiveness is the ability to gain and maintain a market share. The concept of comparative advantage includes also opportunity costs and is, hence, a longer-term measure, and is rather an indicator for efficient allocation of resources. In the case of perfect competition, homogeneous products, perfect information, and the absence of market failures, the competitiveness would be the same as comparative advantage. However, Kannapiran and Fleming (1999) point out that in the real world the above listed assumptions do not hold, in addition, there might be distortions due to government policies, hence competitiveness and comparative advantage are usually different.
Existing theories offer different approaches to explaining and measuring competitiveness. Attempts at systematization of these approaches have been recently made by Gellynck (2002); Hein (2006); Joeri (2006); Berkum (2004); Zawalinska (2004) and Siggel (2003). In a recent study Gellynck (2002), citing an earlier work by Buckley et al. (1988), makes a distinction between performance, potential and process with regard to competitiveness. Performance can be measured in terms of profitability, market share or trade balance. Potential is linked to advantages at the level of inputs such as production factors. Process deals with the question of how the potential is translated in performance. Consequently, a distinction can be made between two categories, namely measuring and explaining competitiveness, and the existing concepts on competitiveness can be grouped to two categories. Measuring competitiveness is limited to quantifying, while explaining goes beyond this in looking for independent variables or drivers of competitiveness. The approaches belonging to the second category and explains what the equations in the first category measure.
3.3 Policy Analysis Matrix and measure of comparative advantage
The PAM is a computational framework, developed by Monke and Pearson (1989) and augmented by Masters and Winter-Nelson (1995), for measuring input use efficiency in production, comparative advantage, and the degree of government interventions. The basis of the PAM is a set of profit and loss identities that are familiar to anyone in business (Nelson and Panggabean, 1991). The basic format of the PAM, as shown in Table 16, is a matrix of two-way accounting identities. The data in the first row provide a measure of private profitability (N), defined as the difference between observed revenue (A) and cost (B+C). Private profitability demonstrates the competitiveness of the agricultural system, given current technologies, prices for inputs and outputs, and policy. The second row of the matrix calculates the social profit that reflects social opportunity cost. Social profits measure efficiency and comparative advantage. In addition, comparison of private and social profits provides a measure of efficiency. A positive social profit indicates that the country uses scarce resources efficiently and has a static comparative advantage in the production of that commodity at the margin. Similarly, negative social profits suggest that the sector is wasting resources that could have been utilized more efficiently in some other sector. In other words, the cost of domestic production exceeds the cost of imports, suggesting that the sector cannot survive without government support at the margin. The third row of the matrix estimates the difference between the first and second rows. The difference between private and social values of revenues, costs, and profits can be explained by policy interventions.
Table 16 Policy Analysis Matrix
|Value of output||Value of input||Profit|
Source: Monke and Pearson, 1989
Note: Private profit: N=A-(B+C), Social profit: O=D(E+F), Output transfer: G=A-D, Input transfer:
H=B-E, Factor transfer: I=C-F, Net policy transfer: P=N-O
The PAM framework can also be used to calculate important indicators for policy analysis. Computations of these indicators are as follows below
3.3.1 The Nominal Protection Coefficient (NPC)
Nominal Protection Coefficient (NPC) of Indian pomegranate and gherkin was estimated in order to examine its export competitiveness in the World market. Nominal Protection Coefficient is a straightforward measure of competitiveness. It is calculated as a ratio between the domestic prices to the International price of a comparable grade of commodity, adjusted for all the transfer costs such as freight, insurance, handling costs, margins, losses etc. If NPC is less than one, the commodity is competitive (as per 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).
a) Nominal Protection Coefficient on Output (NPCO)
This ratio shows the extent to which domestic prices for output differ from international reference prices. If NPCO is greater than one, the domestic farm gate price is greater than the international price of output and thus the system receives protection. On the contrary if NPCO is less than one, the system is disprotected by policy. NPCO is expressed as
NPCO = A / D
b) Nominal Protection Coefficient on Input (NPCI)
This ratio shows how much domestic prices for tradable inputs differ from their social prices. If NPCI exceeds one, the domestic input cost is greater than the comparable world prices and thus the system is taxed by policy. If NPCI is less than one, the system is subsidized by policy. Using the PAM framework, NPCI is derived as
3.3.2 Effective protection coefficient (EPC)
EPC is the ratio of value added in private prices (A-B) to value added in social prices (E-F). An EPC value of greater than one suggests that government policies provide positive incentives to producers while values less than one indicate that producers are not protected through policy interventions.
3.3.3 Domestic resource cost (DRC)
DRC, the most useful indicator among four, is used to compare the relative efficiency or comparative advantage among agricultural commodities. It is defined as the shadow value of non tradable factor inputs used in an activity per unit of tradable value added (F/(D-E)). The DRC indicates whether the use of domestic factors is socially profitable (DRC<1) or not (DRC>1). A state will have a comparative advantage in a given crop if the value of the DRC for that crop is lower than the DRC for other crops grown in that state. Although the DRC indicator is widely used in academic research, its primary use has been in applied works by the World Bank, FAO, and International Food Policy Research Institute(IFPRI) to measure comparative advantage in developing countries.
3.3.4 Private Cost Ratio (PCR)
PCR is the ratio of factor costs (C) to value added in private prices (A-B). This ratio measures the competitiveness of a commodity system at the farm level. The system is competitive if the PCR is less than 1. Using the PAM framework the PCR can be expressed as follows
3.4 Data description
The data requirement for constructing a PAM includes yield, input requirement, and the market prices for inputs and outputs. This is collected from primary and secondary data. The primary data on production aspects of gherkin and pomegranate was collected from Tumkur and Bijapur district of Karnataka, India. Secondary data pertaining to area, production and exports were collected for country as a whole from the government institutions, APEDA, Market associations and also from the exporters of fruits and vegetables. Additional data such as transportation costs, port charges, storage costs, production subsidies, import/export tariffs, and exchange rates are also required to calculate a social price which is collected from the exporters of pomegranate and gherkin from Karnataka. In this study, a PAM will be compiled for pomegranate and gherkin.
Most of the data related to study is collected from the primary source especially Cost of Cultivation of pomegranate and gherkin crops in Karnataka, India. Two stage simple random sampling procedure was adopted for the study. Out of twenty six districts, two districts (Tumkur for gherkin and Bijapur for pomegranate) was selected in the first stage and in the second stage 80 farmers was selected, consisting of 40 farmers in each district cultivating pomegranate and gherkin respectively. Each district is demarcated into homogenous agro-climatic zones based on cropping pattern, soil types, rainfall, and other features. The most difficult tasks for constructing a PAM are estimating social prices for outputs and inputs and decomposing the inputs into tradable and non-tradable components. For computing social prices for various commodities, including both outputs and inputs, world prices are used as the reference price in the study. We choosed U.A.E and Netherlands as reference prices for pomegranate and gherkin since these two countries are major importers. These world prices are obtained from various commodities by referring to officially published source by the different Department of Agriculture all over the world, Ministry of Agriculture from India, and also from export institution like APEDA. The world prices are adjusted for transportation costs and marketing costs to be comparable with farm gate prices. For imported commodities, social prices at the farm gate are calculated by adding marketing costs from the respective CIF Mumbai prices (calculated by adding the ocean freight charge to the FOB price) in domestic currency. Similarly, for exported commodities, social prices at the farm gate are calculated by adding the marketing cost from the respective world reference price in the domestic currency, converted to foreign currency. These prices are converted to domestic currencies using market exchange rates. Finally, marketing costs are added to compare with farm gate prices. Following Pursell and Gupta (1999), marketing costs consist of an interest charge for two months at an 18 percent rate applied to the CIF prices plus INR10 per metric ton to represent other marketing expenses. Similar procedures are used for calculating input shadow prices for fertilizers and pesticides. The social valuation of land is calculated by taking lease value prevailing in that area. Based on Monke and Pearson (1989), who suggested that decomposing all input costs is a tedious task and yields a merely a very insignificant effect on result. Some inputs such as land, labor, farm capital depreciation, animal power, and manure are assumed to be totally non tradable. Once the inputs are disaggregated into tradable and non tradable components, PAM is constructed for pomegranate and gherkin.
The determination of social values is one of the main tasks of economists, since these values offer the best indication of optimizing income and social welfare. In case of domestic factors, which are not traded on international markets, figuring out social prices is difficult and one way to do so involves mentally subtracting the effects of policy. The social costs have been calculated using Value Marginal Product approach, which uses factor share (Si) of various inputs (Xi ) together with the mean values of inputs and outputs (Y) and prices (Pi) . The computation of the social cost of input is as follows.
Pi=[(Si/Xi ) Yi]Py
Once all private values have been matched with their social equivalents, we arrive at two identities:
Private revenue - Private cost of tradable inputs - Private cost of domestic factors
= Private profit
Social revenue - Social cost of tradable inputs - Social cost of domestic factors = Social profit.
3.5 Garrett's Ranking Technique:
The opportunities and constraints in cultivation and export of gherkin and pomegranate were collected from the primary data both from farmers and exporters. Garrett's ranking technique was used to analyze both opportunities and constraints. Basically it gives the change of orders for constraints, advantages into numerical scores. The major advantage of this technique as compared to simple frequency distribution is that the constraints and advantages are arranged based on their importance from the point of view of respondents. Hence the same number of respondents on two or more constraints may have been given different rank Kumar et al. (1999).
- Garrett's formula for converting ranks into percent is as below
- Percent position=100x(Rij-0.5)/Nj
- Where Rij= rank given for ith factor by jth individual
- Nj= number of factors ranked by jth individual
The percent position of each rank is then converted into scores referring to the table given by Garret and Woodswordh (1969). For each factors, the scores of individual respondents were added together and divided the total number of the respondents for whom scores were added. These mean scores for all the factors were arranged in descending order, ranks were given and most important factors were identified.
3.6 Studies on Economics of Gherkin and Pomegranate
Arunkumar et al. (1980) studied the financial aspects of potato in Karnataka and reported that, the total operational cost of potato per hectare in Bangalore in irrigated condition was INR 9558 and in rainfed condition was INR 3567. On the other hand, the operational cost in Hassan amounted to INR 10346 under irrigated conditions and INR 3601 under rainfed condition. The returns from the irrigated and rainfed conditions were INR 12336 and INR 4800, respectively. Further they observed that expenditure on seed (tuber) accounted for 20 percent of the total cost, fertilizers and FYM accounted for 35 percent and labour accounted for 23 percent.
Lohar (1987) studied the economics and marketing of hybrid tomatoes in Sara district (Maharastra state). He found that the per hectare cost of cultivation of hybrid tomato was INR 54698. He observed that the cost of marketing also was very expensive (INR 28297.71 per hectare) and it accounted for nearly 52 percent of the total cost and consumed almost 25 percent of the gross income. Further, he noticed that rental value of land, manures and fertilizers, human labour; other expenses (such as bamboo sutali for tying the bamboo) and plant protection charges were the major cost items and accounted for 33 percent of the total cost. The per quintal cost of production worked out INR 74.09 .Of the total marketing cost incurred by the producers, 55.31 percent was towards transport charges. 40.95 percent towards wooden boxes, 1.02 percent for sutali and 0.87 percent of bamboo boxes. The per quintal marketing costs was INR 38.33. The gross profit realized from the sale of 738.20 quintals of hybrid tomatoes was INR 115903.11 and thus, the net return, after deducting the cost of cultivation and marketing worked out to INR 32902.40 per hectare.
Karisomangoudar (1990) studied the economics of production and marketing of rainfed onion in Gadag taluk of Dharwad district. He found that the total cost of production of rainfed onion was INR 2777.43 for small producers and INR 3788.63 for large producers. In onion production, human labour was a major cost item and accounted for 40.14 percent for small producers and 30.06 percent of total cost of cultivation for 16.28 percent and 29.97 percent for small and large producers, respectively. The net returns obtained by small producers were lower (INR
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