Export performance and value chain analysis of chilli in India

Abstract

Chilli and chilli products are the most important spices exported from India. The country is world's leading producer of chilli as well as exporter, accounting for almost half of the global export volume of chilli. The present study entitled “Export performance and value chain analysis of chilli in India," analysed the performance of chilli exports from India; assessed the export competitiveness measures and factors affecting chilli exports from India and undertook the value chain analysis of chilli in Telangana and Andhra Pradesh. The export performance of Indian chilli was examined for the period from 1960 to 2019. The rate of growth in chilli exports from India has increased in the post-2001 period as compared to the pre-2001 period, while the instability of chilli exports has decreased in the post-2001 period. Among all the decomposed components of the changes in the average export value, the contribution of the changes in the mean export unit value of chilli was found to be highest. The commodity concentration of chilli exports from India was high in pre-2001 period and the exports became more diversified in the post-2001 period. The average value of the commodity concentration index for chilli was 76.46 for the overall period from 1986-87 to 2019-20. The exports of chilli from India became increasingly diversified to different countries and hence the Gini concentration indices have decreased over the years. Before 2001, the geographic concentration estimated using the Hirshman index was above 40 per cent, denoting the higher level of concentration and uneven distribution of export markets. The Markov chain analysis showed that in the post-WTO period, a greater number of stable markets for chilli exports from India were identified. China, Thailand, Malaysia, Vietnam, Pakistan, Brazil and Indonesia became major markets for Indian chilli exports in the post-WTO period. China was an unstable export market for Indian chilli in the pre-WTO period, but it became a stable market in the post-WTO period due to high demand for chilli in China. The increasing trend in the trade complementarity indices of India with partner countries in the trade of chilli after 2001 confirmed that India and its partner countries are becoming more complementary, which implied that India’s export pattern was matching with the import requirements of those countries. The estimated elasticity coefficients of the log-log model for finding out the determinants of Indian chilli exports showed that the production in India and the international price were statistically significant and having positive effects on export supply of Indian chilli, while an increase in the domestic prices and real exchange rate were found to result in a II decrease in the export of chilli from India. The Revealed Comparative Advantage (RCA) analysis showed that India and China were having high comparative advantage in the production and export of chilli. The estimated Nominal Protection Coefficient (NPC), Effective Protection Coefficient (EPC), and Domestic Resource Cost Ratio (DRCR) values were found to be less than one. The Policy analysis Matrix (PAM) analysis under exportable hypotheses suggested that Indian chilli was a moderately competitive crop as an export commodity. The findings revealed that chilli was an efficient exportable item, demonstrating Indian chilli's international competitiveness. The analysis of demand for chilli in the value chain showed that the countries with greatest potential for export of chilli from India are China, United states of America, Thailand and Sri Lanka. The markets with greatest untapped potential for India’s chilli exports are USA, China and Spain. The highest number of NTMs on chilli exported from India were imposed by China, USA, Sri Lanka and Vietnam. The analysis of institutional set-up of chilli value chain has shown that the major institutions providing technical, extension and administrative supports in the chilli value chain are Spices Board, Directorate of Marketing and Inspection (DMI), National Horticulture Board (NHB), Agricultural and Processed Food Products Export Development Authority (APEDA), State Agricultural Marketing Board (SAMBs), Department of Agriculture, Agricultural Produce Market Committees (APMC), Regional Agricultural Research Stations (RARS), and Krishi Vigyan Kendras (KVK). The major input suppliers for chilli are fertilizer and pesticide shops owned by input dealers and majority of the farmers were growing the chilli variety “Teja”. The Supply Utilization Account (SUA) published by the Food and Agriculture Organisation (FAO) was used to analyse the quantity flows of chilli along the value chain in India. In 2018-19, the production of chilli in India was 18,08,011 tonnes, out of which, 12,52,823 tonnes were used for consumption. The opening stock was 8,87,466 tonnes and the import and export quantities were 1,361 tonnes and 3,86,276 tonnes respectively. The closing stock in the country was 10,13,683 tonnes. The estimated weighted average of cost A incurred for chilli cultivation in the sample districts was computed as ₹3,33,459 per ha. The weighted average value of cost B and C for chilli cultivation in these districts were ₹3,98,014 per ha and ₹4,67,610 per ha respectively. The highest values for all the three costs were found in Guntur, whereas it was the least for Mahabubabad district. The major share of input-wise cost incurred for cultivation of chilli in all the districts under study was accounted by hired human labour and was followed byfamily labour. The weighted average of net returns estimated at cost A, B and C were ₹4,69,312 per III ha, ₹4,13,339 per ha and ₹3,44,097 per ha respectively. The B-C ratio for chilli cultivation at cost A varied between the highest value of 2.66 for Guntur and the lowest value of 2.09 for Mahabubabad. The B-C ratio for chilli cultivation at cost B was found to be highest (2.2) in Guntur, while it was lowest (1.83) in Mahabubabad. Similarly, B-C ratio at cost C varied between 1.90 in Guntur and 1.48 in Mahabubabad. The price spread in marketing of chilli was found to be highest in channel IV for dry chilli, while in the case of chilli powder, channel III had the highest price spread. The producer’s share in consumer’s rupee was highest (80.89 per cent) and the price spread was found to be the least (₹27.29/kg) in channel II for dry chilli, while for chilli powder the producer’s share in consumer’s rupee was highest (60.89 per cent) and the price spread was found to be the least (₹89.45/kg) in channel V. The marketing efficiency for dry chilli was found to be highest in channel I due to low marketing cost, and it was highest for chilli powder in channel V as the price paid by the consumer in this channel was the highest. The scarcity of labour was identified as the most important constraint in the production and marketing of chilli and high labour charges as well as price volatility were identified as the other important constraints. Lack of infrastructural facilities like storage and processing were identified as the most significant constraint faced by the intermediaries. The major constraint faced by chilli exporters was highly volatile international price, and in the case of processors, the lack of infrastructure was identified as the major constraint. As SPS measures were the major NTMs in International trade, the quality of Indian chilli should be ensured by encouraging the farmers to adopt Good Agricultural Practices (GAP), while the processors should be motivated to implement Good Manufacturing Practices (GMP). Development of proper warehousing facilities is essential for scientific storage of chilli as absence of proper storage facilities was reported as a major constraint. The chilli prices were highly volatile and hence the recommendation of Minimum Support Price (MSP) or possibility for making a price deficiency payment to the farmers based on a realistically estimated base price need to be explored. The dissemination of timely marketing intelligence is necessary to help the farmers to decide on the time of harvest, period of storage and place of sales. Indian chilli exports were found to be concentrated on few products and the country needs to explore the possibilities for value addition and product diversification which will help the farmers to move up in the value chain. India needs to develop trade policies to sustain as well as increase the share in stable export markets of chilli and must make efforts to enter non-traditional markets.