Implications of trade agreements on India's trade in black pepper and its products

Abstract

Black pepper is one of the most traded spices in the world. The exports of black pepper from India as a share of world exports almost halved from 15.1 per cent in Triennium Ending (TE) 1992 to 7.8 per cent in TE 2017. India became one of the major importers of black pepper, accounting for a share of 7.4 per cent in world imports during 2018. In this context, the present study was undertaken with the objectives, to analyse the trade performance of Indian black pepper and its products, study the dynamics in the trade policies and tariff structure of black pepper, analyse the impact of multilateral and regional trade agreements on trade, ascertain the Non-Tariff Measures (NTMs) affecting black pepper exports from India, estimate the measures of trade competitiveness and to identify the constraints faced by producers and exporters in increasing the competitiveness and exports of Indian black pepper. The rate of growth in black pepper exports decreased in the post-2000 period as compared to the pre-2000 period, whereas the import growth has increased in the same period. The instability of black pepper exports has increased in the post-2000 period, while that of imports decreased during the same period. The export unit value contributed 96.77 per cent growth in the export value of black pepper between preand post-2000 periods. The commodity concentration of black pepper exports from India was high in pre-2000 period and became more diversified in the post-2000 period. The exports of black pepper neither crushed nor ground from India were diversified to different countries after 2000, whereas the crushed or ground black pepper exports were concentrated to few markets in both the periods. The Markov chain analysis showed that number of stable export markets for black pepper neither crushed nor ground have increased after 2000 and USA, Sweden, Canada, Turkey, Switzerland and Spain were found to be the stable markets in the post-2000 period. USA was the most stable market for crushed or ground Indian black pepper in all the periods. The trade complementarity of black pepper neither crushed nor ground was found to be less when compared to crushed or ground black pepper. The estimated import demand function showed that the import demand for Indian black pepper increased with the increase in the Gross Domestic Products (GDP) of the importing countries and the import price, whereas it was found to decrease in the post-2000 period. The estimated export supply function showed that the international price and II Indian production of black pepper were found to be positively influencing the export supply, while post-2000 period was found to be negatively affecting the export supply. The trade policy changes in India have affected the trade of black pepper and the major implication was on the imports of black pepper to India, which has increased after 2000 due to the removal of quantitative restrictions and reduction of tariffs on black pepper. The Regional Trade Agreements (RTAs) that are having implications on Indian black pepper trade are Indo-Sri Lanka Free Trade Agreement (ISLFTA), South Asian Free Trade Agreement (SAFTA) and Association of South East Asian Nations (ASEAN)-India Free Trade Agreement (AIFTA). The RTAs have caused a significant increase in India’s imports of black pepper from Sri Lanka and ASEAN countries. The SMART model showed that the tariff reduction under AIFTA increased the imports of black pepper from ASEAN countries after 2000 and it created a trade creation effect of 19.36 lakh US$, in which Indian consumers were benefitted by low-priced imports of black pepper from ASEAN. Even though there was an increase in black pepper imports from Sri Lanka to India, the ISLFTA and SAFTA caused trade diversion of 14,226 US$ among the non-member countries as compared to trade creation of 11,147 US$ between India and Sri Lanka and the agreements were found to be in favour of Sri Lanka. The interrupted time series analysis showed that the increase in black pepper imports to India after SAFTA was less when compared to increase in imports after ISLFTA. The NTMs imposed by the importing countries affected the black pepper exports from India. As the number of NTMs initiated by the importing country increases in a particular year, the export quantity of black pepper from India was found to decrease in the subsequent year. The values of Nominal Protection Coefficient (NPC) and Effective Protection Coefficient (EPC) were greater than one, which indicated that the export of black pepper from India was non-competitive in the international market. The major constraints faced by the producers were price volatility and disease and, pest incidence, while the constraints faced by exporters were price volatility, stiff competition from other countries and inadequate storage facilities. The trade policy measures to regulate black pepper imports to India should include bringing black pepper under the exclusion list in trade agreements, implementing a safeguard mechanism from surge in imports by imposing additional III tariffs on the basis of volume and price triggers, strictly verifying the country of origin of imported black pepper and monitoring the Advance Authorization Scheme. To increase the awareness of exporters on SPS and TBT measures specific to black pepper, the details of NTMs imposed by major importers of black pepper need to be published. In order to enhance the export competitiveness of Indian black pepper, farmers should be encouraged to increase the productivity and reduce the per unit cost of production. The country also needs to formulate trade policies for stable export markets and develop strategies for gaining entry into non-traditional markets. A market intelligence system with a crop specific price stabilization mechanism and provision for price deficiency payment ought to be developed to tackle the volatility in black pepper prices.