Strong economic growth is projected to lead to continued expansion of Indian apple demand, but the high cost of domestic and imported apples compared with other Indian fruit is likely to limit consumption to higherincome consumers. U.S. apples have accounted for the largest share of Indian imports, but face increasing competition from high-quality and lowcost Chinese apples. Although India has a high (50-percent) tariff on imported apples, internal marketing margins—or returns to traders over and above measured costs—account for a significantly larger share of consumer apple prices than do import prices, tariffs, or marketing costs.
As a result, increased investment and competition in the domestic supply chain is likely to be particularly effective in boosting apple demand and imports. Domestic growers appear not to have been damaged by the entry of relatively highpriced and high-quality imports, nor have they exploited the opportunity to boost earnings by improving quality to compete with imported apples.
Introduction
In the 1990’s, the Indian economy entered a state of transition when the reform of highly protectionist domestic and trade policies led to more rapid growth in incomes and foreign trade. Trade reforms gathered momentum after the Uruguay Round and the first major liberalization of agricultural trade occurred in 1997, when quantitative import restrictions were lifted and private trading was permitted in several food items. By 1999, quantitative import restrictions had been removed on about 470 agricultural products, and, in April 2001, the Government removed the restrictions on almost all agricultural products. Although many bound tariff rates remain high, applied tariffs are now low enough to permit rising imports of a number of farm commodities. Among these are pulses and vegetable oils—of which India is the world’s largest importer—as well as smaller amounts of horticultural and processed products, including apples.
With the lowering of trade barriers, agricultural exporters now have a growing interest in the potential of India’s large, and increasingly dynamic, market. This study analyzes recent developments in India’s market for apples, a commodity that India both produces and—beginning in 1999— imports from the United States and other suppliers. The findings highlight the importance of “behind the border” factors—factors beyond the traditional focus on tariffs and other border measures—in expanding exports to emerging markets. Although India’s apple tariff is one of the highest in the world, internal marketing margins—or returns to traders over and above measured costs—play an even larger role in raising domestic prices and restricting apple consumption. Factors contributing to high trading costs and margins include lack of competition in the marketing system, lack of investment and integration in the marketing chain, and the marketing and price risks faced by growers.
The Indian apple market also provides an example of the potential implications of import liberalization for domestic producers in emerging markets. Import liberalization for agricultural products, such as apples, has been a cause for concern among Indian farm policymakers who are primarily focused on the welfare of domestic producers. An important finding of this study is that Indian apple producers appear not to have been adversely affected by imports because the relatively high quality and price of imported apples make them imperfect substitutes for domestic apples. Instead, the presence of imported apples demonstrates an opportunity for domestic growers to increase earnings by improving quality to compete with imported apples.