The Hindu Business Line : Plan for plantation crops

PLANTATION CROPS MAY not be `essential commodities'. But from the point of view of employment and foreign exchange earnings, their commercial importance to the farm economy cannot be underestimated. Commodities such as tea, coffee, cashew and pepper have always had a significant level of export orientation. Malabar black pepper and Darjeeling tea, for instance, are sought after in the overseas markets. However, over the last three to four years, the plantation sector has been facing unprecedented challenges. If declining export prices and falling export volumes have led to loss of market share, increasing competition from low-priced imports is pushing domestic prices down, much to the discomfiture of primary producers. The situation is widely seen as the fallout of the removal of quantitative restrictions on imports and the signing of bilateral trade agreements with neighbours, but in reality these are hardly the major causes.

If tea gardens are abandoned, Indian coffee goes abegging due to a glut in global market, pepper crashes to the lowest prices seen in recent years, coconut oil consumers here pay twice the international price and raw cashew imports are higher than domestic output. These are not to be seen as isolated, commodity-centric developments, but as symptoms that point to a deeper malaise. There is a common thread running across most of the plantation crops, a feature that came through clearly during the recent India International Commodity Fair and Conference in Kochi that covered as many as seven crops — tea, coffee, rubber, cashew, coconut, coir and spices.

The export competitiveness of plantation crops is clearly under threat. Low productivity and inferior quality are the bane of the sector, in general. The output base is hardly strong as the sector, as a whole, is under-invested. Big players have unfortunately not ploughed back enough profits into strengthening the supply chain. Inadequate investment in research and development affects productivity while making Indian produce more expensive. The industry cannot escape being criticised for its excessive dependence on export markets — which, by their very nature, are fickle — and for failing to improve export competitiveness in terms of quality and price. Worse, it has failed to service and nurture the burgeoning domestic market.

As for the role of traders, the less said the better. Futures trading in plantation crops would surely help price discovery and price risk management; but will hardly be a substitute to investments actually flowing into the sector. Clearly, in future, the market for plantation crops is not outside the country, but within. This is not to suggest that the goal of export should be abandoned; it is only that the priority should change. Establishing backward linkages is the way forward for big players in commodities such as pepper and cashew. Some of the Commodity Boards seem to be outliving their utility. They need to be revamped and professionalised in the context of increasing integration of the domestic market with the international market. There is much to learn from competitors such as Vietnam, which entered the international scene not long ago, but has raised its market share through aggressive marketing facilitated by lower production costs.

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