The Hindu Business Line : How our grapes turn sour

India produces more than a tenth of all vegetables, and 15 per cent of all fruits in the world. FOB (free on board) values of our exports are nearly half the corresponding world unit values. Yet, our share in global trade is minuscule: Only 1.7 per cent in vegetables, and a mere half per cent in fruits.

The biggest obstacles to the competitiveness of India's horticultural exports lie outside the sector rather than inside it, says a recent publication from World Bank. The average price at the farm-gate for a typical horticulture product is just 12 to 15 per cent of the price at which it is retailed. So, a 20 per cent improvement in yields can translate as only 2.4 to 3 percentage point reduction in the final price, whereas a 20 per cent reduction in international transport costs can reduce final prices by almost 8 to 10 percentage points, says the book titled 'From Competition at Home to Competing Abroad: A case study of India's Horticulture'.

The study, edited by Aaditya Mattoo, Deepak Mishra and Ashish Narain, from Oxford (www.oup.com), is 'a supply chain analysis of ten horticultural products, based on primary surveys that covered 1,400 farmers, 200 commission agents, and 65 exporters acros s 15 states'.

Apart from quality problems and policy barriers that our exporters have to surmount, an important impediment highlighted in the report is 'logistical tax', meaning 'high delivery costs which significantly erode the production cost advantage enjoyed by In dian farmers'. Domestic and international transportation cost is the single-largest contributor to the retail price, 'accounting for nearly 25-40 per cent of the price'.

As an illustrative exercise, the authors track the journey of a kg of grapes through the supply chain, and show how the farm-gate price of Rs 14 in Hyderabad builds up to a final price of Rs 120 at a supermarket in London. Inland transportation, storage and handling, commissions and taxes, packaging materials, plus margin add Rs 24 to the original price. 'Air-freight and insurance charges' of Rs 54 are 'the single largest component of the retail price'.

Another grape story is about how our costs compare with those of competitor countries. "The distance between India and Netherlands is 6,858 km while from Chile to Netherlands it is 12,007 km." However, our transportation costs, at $790 per tonne of grape s, from India to Netherlands, are '260 per cent higher than it takes to transport the same from Chile'.

A case of soured grapes.

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