India-South Africa: Will the envisaged MoUs on certain agricultural products be beneficial for South African exports?
Willemien Viljoen, tralac Researcher, discusses the potential implications of MoUs between India and South Africa on pigeon peas, persimmons, mangoes and pork products for local exporters
After the conclusion of the 6th Brazil, Russia, India, China and South Africa (BRICS) meeting of Agriculture Ministers in India from 22 to 23 September 2016 the South African Minister of Agriculture, Forestry and Fisheries released a statement stating South Africa will be granted an opportunity to export pigeon peas (Cajanus Cajan), persimmons, mangoes and pork products to India. This will be based on Memorandums of Understanding (MoUs) between the two countries, terms of which are yet to be finalised. The South African Minister indicated that the opportunity will include the opportunity for South African producers to export 1000 tons of pigeon peas per annum after 2018 and a minimum of 100 tons of pork products from 2017. However, questions have been raised about what improvements are envisaged in terms of market access seeing that South African cannot benefit from preferential tariffs and duty-free access under India’s Preferential Duty Scheme for Least Developed Countries (LDCs)? Are these products subject to tariff negotiations under the SACU-India Free Trade Area negotiations? Will improved market access of these specific products be of any significance for South African producers and exporters? Even if South Africa could qualify under the LDC Scheme compliance with India’s strict import requirements is still required (including pre-shipment inspections).
The trade data currently shows that India is not a major destination market for South African agriculture exports:
In 2015 South Africa exported agricultural products to the value of US$ 8 billion of which only 0.21 percent was exported to India.
In the same year India imported agricultural products to the value of US$ 21 billion; mainly from Indonesia, Malaysia and Argentina. South African was 54th in the rankings of supplying markets for India’s agricultural imports for the year; supplying only 0.10 percent of India’s total agricultural imports for 2015.
The envisioned MoUs will cover exports of pigeon peas (HS 071360), persimmons (HS 081070), mangoes (HS 080450) and pork products (HS 0203) from South African to India. According to the India tariff book for the year 2015-16 the applicable Most Favoured Nation rate of duty for these products are 30 percent for each product. However, India has a preferential tariff scheme in place for LDCs which unilaterally grants preferential tariffs currently on 114 tariff lines and duty-free access on more than 350 tariff lines. Under the scheme LDCs currently have duty-free access to the India market for pigeon peas, persimmons and pork products, while the preferential tariff for mango imports is 20 percent. South Africa is not one of the countries listed as a least developed country which qualifies under the scheme for preferential market access. This means that South African exports of pigeon peas, persimmons, mangoes and pork products face high tariffs when exported to India; one of the factors which is currently contributing to the lack of trade in these products between the two countries as exemplified by the trade data:
In 2015 South Africa did not export any pigeon peas, persimmons, mangoes and pork products to India.
India is the biggest producer of pigeon peas followed by Myanmar and Malawi. However, due to increasing demand India imported pigeon peas to the value of US$ 519 million in 2015. The majority was imported from Myanmar (43%) followed by Tanzania (22%) and Mozambique (18%).
South Africa produces pigeon peas in the Limpopo and Mpumalanga provinces; these are mainly to satisfy domestic demand. In 2015 exports where insignificant; 23 tons of pigeon peas were exported of which 99 percent was to Namibia.
There are currently no recorded imports for persimmons into India.
In 2015 South Africa exported persimmons to the value of US$ 15 million (0.2% of total agricultural exports) mainly to the Netherlands (65%).
India is the biggest producer of mangoes followed by China and Thailand. Although there has been a 20 percent increase in India’s mango imports over the last five years India’s imports of mangoes are negligible. In 2015 India imported mangoes to the value of US$ 1 million.
South Africa’s exports of mangoes have increased by 41 percent over the last five years with mangoes mainly exported to the United Kingdom, Germany and Switzerland. In 2015 South Africa’s mango exports accounted for 0.29 percent of total agriculture exports.
India’s imports of pork products have been negligible, but have steadily increased over the last five years. In 2015 India imported 257 tons of pork products, an increase of 31 percent compared to imports in 2014. In 2015 South Africa exported pork products mainly to neighbouring countries, including Namibia (39%), Mozambique (18%), Botswana (14%), Lesotho (8%) and Swaziland (6%).
Whether the MoUs will be of significance for South African producers and exporters will depend on the nature of the demand for these products in India’s market and the terms of the MoUs. In terms of Indian import volumes pigeon peas seem to show the biggest potential for South African exporters. However, production in South Africa is limited. Furthermore, South Africa will be competing in the Indian market with countries which have duty-free access under the preferential duty scheme. Also, in July of this year India and Mozambique signed a MoU regarding pigeon peas to increase production in Mozambique and trade between these two countries. According to the MoU the target is to have an increase of 25 percent (year-on-year) of pigeon pea exports over five years (from 2016/17 – 2020/21). Where the true opportunities might lie is with persimmons, mangoes and pork products. Mangoes and pork products are currently being imported from other countries which fall outside the ambit of the LDC preferential duty scheme.
However, this will depend on the nature of the market access granted. Currently South Africa exports these products to destination markets which grant South African products duty-free access due to various trade agreements in place. Furthermore, the majority of mango imports into India flow from Thailand which has a proximity advantage over South African exports. The import requirements (food safety and standards, packaging and labelling, quarantine, pre-shipment inspections and licensing) for all the products in the Indian market are quite stringent and can be costly to comply with.
These MoUs are currently still under negotiation. However, for them to be truly beneficial for South African producers the South African Department of Agriculture, Forestry and Fisheries must take the following into account: how will demand for these products in the Indian market be stimulated to encourage production in South Africa; does the supply-side capacity exist in the South African industry or are there supply-side constraints which need to be addressed; how will any supply-side constraints be addressed; what measures will be utilized to encourage and develop domestic supply for export; will assistance be granted to ensure compliance with import requirements and what will the precise terms of the market access be seeing that South Africa falls outside the definition of an LDC. The nature of the market access needs to be carefully designed so that the benefits will outweigh the additional costs (possibly import duties, transportation costs and compliance with import requirements) South African producers will incur to ensure the products will be competitive in the Indian market.
FOA stats (http://faostat3.fao.org/home/E);
India Preferential Duty Scheme (http://www.intracen.org/uploadedFiles/intracenorg/IndiaDutyFreeTariff.pdf);
India Tariff Book (http://www.cbec.gov.in/htdocs-cbec/customs/cs-tariff2015-16/cst2015-16-idx);