RESTRICTED Report No. SA-26a This report is for official use only by the Bank Group and specifically authorized orpanizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or ceompleteness of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Z W 0 , C 0 z _ C a, - (in two volumes) l --I EXPORT PROSPECTS OF PRIMARY AND QUASI-PRIMA > I CONTAINING: W A. SA-17a - Exports of Jute Goods '-. 0 B. SA- 18a - Exports of Marine Products C. SA-19a - Exports of Leather & Leather Produ _ __ D. SA-20a - Exports of Iron Ore E. SA-21a - Exports of Cashew Kernels May 27, 1971 South Asia Department CURRDCY B=JAtIV 1 lndian Rupee * US$0.13 1 US Dollar Rs 7.5 Rs 1,000,000 a US$133, 333 The Indian GoVW,unt fInanoial yea runs from april 1 1Org March 31. This report is bae on the findinp of two wdasons which visited India No York and BaPeniolies In 1970. The firwt mission (une/July 19705 which revied the upwt prospets of pizmay and quasi-primary product was cmpose of X nwo. Albwrto di Cepitand (econamst, South Asia Department); Cbistia Ladome, (hief of nd.aian, South AdsA Departmt). lbs second mission (Octobm/Decenbr 190) which reviewed the exort prospeta of Incbastrial prodhcts was composed of Mesrs. Earl COfll: (arketng specialist consultant); Jack Derick (production consultant); Jue FuRma (economist, South Asa Departast); Christian Ladoner, (chief of idsido, South Adia Departmnt) and klexandr Novicki (deputy chief and Industrl econoamst, Economics Department). For two weeks, the missio was joined In lndia by Mr. Timothy Lunkestw, economist, of the Resident Mission in New Delhi. RESTRICTED Report No. SA - 17a INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVEIMMENT ASSOCIATION EXPORTS OF JUTE GOODS INDIA May 27, 1971 South Asia Department INDrA EXPORTS OF JUTE-GOODS TAELE OF CONTENTS Page No. SUMMARY ............. ...................... . . ii I. RAW MATERIAL PROLEMS . . ...... . 1 II. COMPETITION FROM PAKISTAN . . . . . . . . . . .. 2 III. WORLD DEMAND PROSPECTS: AN ASSESSMENT . . . . . 6 IV. COMPETITION FROM SYNTHETIC CARPET BACKING . . . . 8 The Consumers' Reaction ........... 9 Dealers' Reaction . . .. . .. ........ 10 Synthetic Manufacturers' Strategy . . . . . . . 10 Carpet Manufacturers' Motivations . . . . . . 11 Jute Producers' Possible Strategy . . . . . . 12 V. CONCLUSIONS. . . . . . . . . . . . . . . . . . . . 13 ANNEXES Tables: I - Production of Jute and Mesta in India II - Export of Sacking from India and Pakistan III - Export of Hessian from India and Pakistan IV - Export of Carpet Backing from India and Pakistan V - Export of Jute Goods from India and Pakistan VI - Apparent World Consumption of Jute by Major Countries, 1963/67 VII - Apparent World Consumption of Jute Goods by Area: 1937-1967 VIII - World Imports and Exports of Jute Goods IX - Consumption of Carpet Backing - Percentage-wise of Backing X - Production of Jute Goods in India XI - Export of Jute Goods from India by Countries This report is based on the findings of a mission which visited India and European cities in June/July, 1970, composed of Messrs. Christian Ladonne and Alberto de Capitani. INDIA EXPORTS OF JUTE GOODS 2/ SUMMiARY 1. It is impossible to dissociate the problems faced by the Indian jute industry from those faced by the Pakistani jute industry. In both countries production of raw jute has remained more or less stagnant during the last decade, and this factor has certainly pushed the importing oountries to try to lessen their reliance on a commodity for which there is a growing need (especially for carpet manufacture) and to look for substitute materials. 2. Thanks to the bonus schemes granted to its exporters, Pakistan has been able gradually to price India out of the world market for sacking, so that India has virtually become a residual exporter. Except for some shipments to U.S.S.R. and U.A.R., India exports no more sacking. Followiing the building up in Pakistan of capacities for production of hessian goods, Indian exports of hessian in 1969 dropped to half the level reached five years before. In carpet backing, Indian exports have still continued to grow, at least up to 1969, but here also Pakistan has ambitious plans to develop this line of production with a threefold increase in capacity so that in the coming twro years Palkistan's production capacity could reach about half India's capacity. 3. Nevertheless, up to now Pakistan's competition has not been a crucial factor in India's overall export performance, since India shifted to the production of jute carpet backing. If India's exports declined gradually from their peak level of 930,000 tons in 1964 to 570,000 tons in 1969, it is because the industry suffered from a shortage of rawi jute and also because domestic consumption of sacking increased very rapidly from 137,000 tons in 1957 to 330,000 tons in 1968 and 280,000 tons in 1969. 4. World demand for sacking is decreasing rapidly; wJorld demand for hessian has remained stagnant for the last 15 years. The only product for which demand is increasing rapidly is jute carpet backing. But now jute carpet backing is subject to steady inroads by synthetic backing promoted and marketed by petrochemical complexes. Five years ago, jute enjoyed a near monopoly in the U.S. primary carpet backing market; today, nearly 40 percent of the market has been lost to synthetic and other materials. In secondary backing, displacement of jute by man-made materials has also been quick, if less dramatic. Displacement of jute by synthetics materialized mostly during 1969 and the first half of 1970 at a time when there was a tremendous over-supply situation in the U.S. market for both jute and synthetic carpet backing. 1/ Problems and prospects of Indian exports of jute manufactures have been studied in depth by Mr. Bension Varon from the Economics Department (Report No. EC.168; January 1969). The purpose of this paper is therefore limited to the study of the most recent problems facing the Industry. (ii) 5. Demand prospects for carpets in developed countries are such that carpet manufacturers are becoming increasingly reluctant to rely on uncertain sources of supply: lasting, ensions between India and Pakistan, disturbances in Bengal and East PakistarA strikes in the Indian jute industry and dock strikes, etc., undoubtedly affect the regularity of supply to carpet manufacturers. Moreover, by relying on domestic supply, they can also by-pass another adverse factor: dock strikes in their own country. There is a clear evidence that the U.S. dock strikes in the fall of 1968 provided a big impetus to the manufacturers of synthetic backing. Furthermore, the closure of the Suez Canal and the large price fluctuations of jute goods did not help the jute industry. 6. Nei,! end uses of jute goods might of course be found, and there wsill always be a market for jute goods. However the jute world market is becoming increasingly uncertain. In the case of India - a residual supplier - prospects appear therefore rather dim. 1/ This report has been written before the events of March 1971 took place. I. RAW MATERIAL PROBLE14S 1. Until Partition, undivided India was practically the world's sole producer of raw jute. At Partition, 75 percent of the jute-growing area x-rent to Pakistan, while the bulk of the jute manufacturing industry remained in India. India had, therefore, to import a large quantity of jute from Pakistan under special trade agreements,but at the same time embarked on a vigorous drive to attain self sufficiency. This move has been largely succe ful and production of rawJ jute and mesta increased from 2 million bales- (360,000 tons) during the two years folloing Partition to over five million bales (900,000 tons) in 1952-5332. Thereafter production remained more or less stagnant at an average of 6 to 7 million bales a year. In spite of this increase, India has not become completely self sufficient and on an average the self sufficiency ratio of the industry varies from 80 to 90 percent depending on the local crop, uhich fluctuates widely2/with the vagaries of the -!eather and jute/rice price ratio in the previous season. Therefore, the industry has to rely on imported raw materials, but these imports are inadequate so that the industry has very often to work under voluntary production curtailment programs. 2. Since the 1965 conflict, there has been no official import of rawr jute from Fakistan. India has therefore to rely on imports of fibers from Thailand&, part of which are in fact Pakistani raw jute, and probably on smuggled fibers from Pakistan. On the average, India has to import half a million bales a year, but when the local crop is bad, imports are much higher: 1.3 million bales in 1966, 0.8 million in 1967, etc. 3. Roughly, 30 percent of Indian raTi jute output consists of mesta, wqhich is generally inferior to true jute. The raw-r material deficiency of India is mostly in superior quality true jute which is needed for the production of special products such as carpet backing, and there is a definite trend in Pakistan to withhold supplies of such quality of fibers to the benefit of its own manufacturers. 4. W^hile Pakistan jute continues to be grown in traditional areas, jute production in India has spread outside the traditional areas of West Bengal to marginal lands, which explains the comparatively poor quality of the Indian fiber. Increase in production in India is entirely the result of the extension of the cultivated area. In Pakistan the area cultivated and production of raw fiber has remained relatively static. Yield per hectare is higher in Pakistan (1.5 kg.) than in India (1.2 kg.), but in both countries there has been no increase in productivity for the last 20 years - if there is a trend, it is a downward one. There are, of course, plans to increase the yield by using fertilizers and improved seeds and also to improve the quality of the fiber, through better retting facilities and better training. 1/ One jute bale equals 400 lbs., or roughly 181 kgs. net. 2/ Source: Indian Jute Mills Association - Department of Statistics. 3/ See Table I in Annex. I/ Thailand produces mostly kenaf. - 2 - 5. Unfortunately, the real economics of jute growing militates against such plans. Traditionally, when the industry has been able to pay a high price for the fiber, the growers sow more jute, and vice versa. The resulting price fluctation is further aggravated by the speculative tendency of trade in raw jute, in which some jute mill owners are reported to be associated. The actual growers benefit only partially when the price is high, but are the major losers wThen the price is low. Sometimes, as in 1967/68, many cultivators were unable to obtain a price which covered the cost incurred in producing the fiber. Under these circumstances, it is most unlikely that the farmers, who are generally poor and in debt will invest to improve their cultivating practices. Even now for minimum investments in jute cultivation, they are obliged to rely on the rawJ jute traders uho readily offer advances on high payment price and dictated terms. Apparently, the situation in Pakistan is similar. 6. As it is, it is improbable that India and Pakistan will increase their output of raw! jute in the near future. It might even happen, if the "miracle" paddy seeds could be successfully introduced in jute growJing areas, that farmers partly turn to rice growing on a long term basis. 7. Pakistan and India have a near world monopoly in the production of jute. If we now consider the total production of jute and allied fibers (mesta, kenaf, sisal, etc.), India and Pakistan account each for a third of world production, wThile Thailand with 1 percent and the U.S.S.R. and mainland China wlith 15 percent account for most of the remaining output. II. CO1PETITION FROM PAKISTAN 8. Since 1940, the number of looms in India has practically remained unchanged at about 75,000; in recent years however, the proportion of broad looms to the total has increased. For carpet backing, India has about 6,000 looms. In contrast, the Pakistani industry has developed rapidly: from about 4,000 looms in 1955 to about 22,000 at present. As of June 1969, the broad looms position for carpet backing in Pakistani mills was as follows: 900 installed, 600 ordered and 1,500 sanctioned but not ordered. In one year ahead from now, installed capacity could therefore be 3,000, i.e. half the Indian capacity, if the program is implemented. 9. On the world market, Pakistani exporters have definite advantages over their Indian counterparts: the availability of higher quality raw jute, preferential freight rates, tax rebates and chiefly the incentives offered through the bonus voucher scheme. Under this scheme, a variable percentage of the f.o.b. value _is received in the form of a bonus voucher which can then be sold in the open market for as much as 170 percent of its face value. 1/ Recently increased from 30.to 35 percent. Raw jute export has also received a bonus voucher of 10 percent. -3- 10. In contrast, the effect of India's 57.5 percent devaluation on the price of jute goods was partly offset by heavy export duties levied by the government. The purpose of these duties was to raise export prices in terms of rupees, thus preventing a sharp fall in the dollar value of exports, and reaping part of the pro- fit which might accrue to exporters. At the same rime, the tax credit certificates which had been given to exporters were abolished K Moreover, devaluation raised the prices of imported raw jute by roughly 58 percent; the Government granted subsidies on imports, which were, nevertheless, far below the increased cost on imported raw jute. The effective exchange rate for jute goods increased from Rs 4.76-5.24 (dq- pending on the product) to only Rs 5.30 compared to the new par rate of Rs 7.5 & 11. Estimated costs of production per metric ton by major products are as follows: 21 India 1969 Unit: in US$ (US$ - 7.5 Indian Rupee) Batch Conversion Total Adjust- Selling Cost Cost Cost ment v' Margin Price Hessian 180 121 301 + 26 + 19 346 Sacking 144 77 221 - + 13 234 Carpet Backing 275 156 431 + 80 +123 63k Pakistan 1969 Unit: in US$ (uS$ - 4.8 Pakistan Rupee) Hessian 170 194 364 -124 + 97 337 Sacking 126 137 263 - 89 + 50 224 Carpet Backing Data not available but estimated to be below India's selling price This table shows that not only can Pakistani exporters quote systematically lower prices than Indian exporters for goods of comparable quality, but at the same time work with a much higher margin. This systematic pricing policy of Pakistan has reduced India to the position of a residual supplier, which can sell only when Pakistan has no more goods to supply. Moreover, in India itself, jute manufacturers of sacking and hessian are not allowed to export at prices lower than those prevailing in the domestic market: this policy may prevent underinvoicing, but is, undoubtedly inimical to exports. This limitation does not apply to carpet backing, since the domestic market for this commodity is insignificant, 12. Except in the case of sacking, where there is stiff competition among the Pakistani exporters themselves, with the result that prices have sometimes been 20 to 30 percent lower than Indian quotations, Pakistani manu- 1/, In February 1965, the Government began granting tax credit certificates equal to 2% of the value of jute goods exported. In October 1965 the rate of tax credit on export of carpet backing was raised to 5%. These certificates were roughly worth twice their nominal rate. See B. Varon in Indian Export of Jute Manufactures, page 26, IBRD. Ec 168. 3/ Source: Survey of India's export potential of jute and jute products. Administrative Staff College of India, Hyderabad (January 1970). Adjustment includes export duty or bonus voucher where applicable. - 4 - facturers consistently match India's quotation minue a reduction by 2i)o 5 percent. Moreover, Pakistan's goods are of fully acceptable quality. !f There is also a more direct contact with importers and end-users. Pakistan has a faster system then India f?r dealing with claims: 1 month instead of up to one year in case of India.-' 13. In the case of sacking, price differentials have been the follow- ing:3/ F. 0. B. Prices Prevailing in Export Market for India and Pakistan Unit = (U.K. shilling) B. Twills per 100 Bags Heavy lees per 100 Bags India Pakistan India Pakistan January 1968 227 193 227 193 April 1968 211 182 215 182 August 1968 2h7 175 247 175 December 1968 261 189 261 185 February 1969 281h 178 284 178 As a result, India scarcely exports any more sacking. In 1957, India exported 430,000 tons, and in 1969 less than 50,000 tons. Except for a few specialized items like wool bagging to Australia, India exports sacking only to countries with which she has bilateral agreements, like USSR, UAR etc. All other markets have been practically lost. On the other hand, Pakistani exports increased from 60,000 tons in 1957 to 250,000 in 1969. 14. As we shall see later on, world demand for sacking is decreasing and this has led to overcapacity in Pakistan and in India. Indian capacities alone would be sufficient to take care of both the world consumption and the domestic consumption, which has increased steadily since 1956 from 150,000 to 330,000 tons in 1968. On the other hand, in planning the development of its sacking industry, Pakistan made an over-optimistic assessment of world demand, and over-invested heavily. For instance,in 1967, overproduction was such that competition between Pakistani exporters brought down the price of sacking to the price level of the raw jute. Since then Pakistan has been actively reorienting part of its sacking production capacities into produc- tion of hessian. 1/ Pakistani goods are on an average of the same quality as India goods. Pakistan has two main advantages over India: availability of raw jute of better quality and more modern equipment. On the other hand, India which has been engaged for a long time in manufacturing jute goods, has better expertise in managing the manufacturing process. 2/ Claims applied to less than one percentage point of total shipment. 3/ Source: Market information, Louis Dreyfus and Co. Jute Goods Market Report. - 5 - 15. This new emphasis on production of hessian accordingly cut down the Indian export market for hessian. The following table will show how Pakistan systematically prices India out of the world market: 1 (Unit: U.K. shillings) Hessian per 100 yards Hessian per 100 yards 40" 10 ounces 40" 7.5 ounces India Pakistan India Palkistan January 1968 85/5 83/6 64 62 April 1968 9/8 76/6 54/8 57/6 August 1968 94/6 92 73/3 71/3 December 1968 108 109 82 82 February 1969 110 101 82/6 76 16. In 1957, India exported 400,000 tons of hessian and Pakistan 30,000 tons. In 1967, when Pakistan started investing heavily in hessian production, India was still exporting 380,000 tons, while Pakistan exported about 100,000 tons. Two years after, in 1969, Pakistan exported nearly 200,000 tons and Indian exports came down to about 250,000 tons. Pakistan has at present plans to increase its loom capacitysubstantially. Therefore, in a few years time, when Pakistan production would be enough to satisfy the entire world demand, India will be completely ousted from the world market except for a few specia- lized products and in the markets of centrally planned countries. The impli- cation for the Indian industry will be much worse than in the case of sacking, because the rapidly growing home demand which increased from 22,000 tons in 1956 to 60,000 in 1968, is still very modest. 17. Perhaps the same story will oce-ar in the case of jute carpet backings. In two years time, Pakistan o.pacity might be half Indian capacity and again India will become a residual supplier, who will export only after Pakistan has sold its entire production. Probably, the growth of world carpet backing requirements could have very easily accommodated production of both countries; unfortunately, the size of the carpet backing market is such and looks so promising that corporations in developed countries have tried and succeeded in developing synthetic substitutes. We will refer to this problern later on. 18. Under these circumstances the competition between India and Pakistan could become a very unhealthy one.!/ Jute and jute products account for 50 percent of total Pakistan exports and it is understandable that Pakistan wants to maximize its export earnings by selling processed products instead of raw 1/ Source: Market information, Louis Dreyfus and C. Jute Goods Market Report. 2/ We would like to stress again that up to now, competition from Pakistan has not prevented India exporting available jute goods. Exports have been limited only by the shortage of raw fibers. -6- jute, which increase at the same time income and job opportunities. To achieve this goal, Pakistan has devised an efficient scheme; however, the success of this scheme could be achieved in the near future at 'the cost of an equally poor country: India, whose jute exports account now for less than 16 percent of exports after having accounted for 32 percent in 1951. Against Pakistan's strategy, India is defenseless. 19. The G.O.I. has often been criticized for levying export duties on jute products; maybe the removal of these duties might have improved the profitability of the industry which has shown a steady decline for the last few years, but it must be realized that this would probably not have helped very much the export performance of sacking and hessian. For India to enter into a price war with Pakistan would be detrimental to her own interest. Except in sacking, India is, and will continue to be the price leader in the field of jute manufactures, as Pakistan quotes according to Indian prices. India's pricing policy should, therefore, be structured to meet the threat of synthetic and other substitutes rather than to attempt to win a higher market share from Pakistan through across-the-board price reductions. III. WORLD DEMAND PROSPECTS: Al ASSESSMENT 20. As seen from tables VI, VII and VIII, world consumption of jute goods increased by 75 percent between 3937 and 1967, but international trade of jute goods scarely increased. Therefore, most of the increase in consumption took place in producing countries, mainly in India and Mainland China, while consump- tion declined in non-producing Asian countries. Consurnption in Latin America had increased from 1937 until 1965; rising most rapidly in the late 1950s. From a peak level of 220,000 tons in 1965, consumption had declined to a level of only 165,000 tons by 1967. This major decline has been due primarily to the bulk handling of wheat and sugar; furthermore, import requirements of those countries declined even more rapidly due to extensive usage of locally grown hard fibers for packaging. On the other hand, African countries increased their consumption from a level of 115,000 tons in 1937 to 180,000 tons by 1967. 21. Jute consunption in centrally planned countries of Europe was low in the 1950s but has doubled between 1955 and 1965. The growth in consumption in the U.S.S.R. has been extremely fast; from 103,000 tons in 1961 to 214,000 in 1967. The wide base of agricultural production in the U.S.S.R., together with the past relatively low consumption of jute goods, indicates a possibility of some increase, even a very large increase, if competition from synthetic materials comes slowly. (The latter is far from sure since that country is interested in developing its petro-chemical industry.) 22. The centrally planned countries, both of Asia and Europe, have continued to contribute significantly to the total world consumption pattern. From a level of about 4 percent of world consumption in 1937, it has risen to a level of about 25 percent by 1967. The large consurmption in the Peoples Republic of China is significant primarily in the global picture of world consumption as almost all of its production of fibers is consumaed internally and is of 7ittle importance to world trade. 23. As far as the western developed countries are concerned, it should be noted that while they accounted for over 60 percent of world consumption in 1937 this percentage had declined to 39 percent by 1967. 24. Jute is a versatile fiber with many end-uses. However, its greatest use is concentrated in the realm of packaging and floor covering. World demand for sacking is decreasing, especially during the last few years: 1/ combined exports of Pakistan and India fell from 500,000 tons in 1957 to less than 300,000 tons in 1969. For the past 15 years, combined exports of hessian goods from Pakistan and India have remained even at around 500,000 tons per year.2/ The reasons behind the overall decline of demand for jute packaging material are well known:- i) bulk-handling in the U.S.A., Europe and Latin American countries; ii) tendency in certain countries, mainly in Africa and to a certain extent in Latin America, where it is possible to grow indigenous fiber1 to meet requirements of packaging through indigenous production, even if it is not always economic to do so; iii) major inroads into the jute trade have been made in the developed countries both in paper and polyethylene. The movement towards smaller sized packages, the reluctance of laborers to handle heavy containers and consumer preference for attractive packag- ing have inhibited the use of jute as packaging in all but heavy duty items; iv) the long line of supply from Asia, the past indifference to normal trade procedures, erratic prices of jute and the relative cost of jute and other substitutes have encouraged this switch by end-users. 25. On the whole, it appears that world consumptionof jute packaging materials will probably not change much in the coming few years, but exports are most likely to decrease. Decrease in demand from developed countries and Latin America will probably be offset by increased demand in Asia, chiefly in India and Mainland China, and to a lesser extent from the U.S.S.R. 26. India started exporting jute carpet backing in 1956 and the world demand for this commodity especially after .1965, increased in such a way, that India now exports 220,000 tons. 3/ Combined exports of India and 1/ See Table II in Annex. 2/ See Table III in Annex. 3/ We refer mostly to backing for tufted carpets. The status of jute in woven carpet backing is up to now apparently secure. But the importance of woven carpets is rapidly declining, because woven carpets are more than twice as expensive as tufted carpets. The present share of the carpet market is 5% for woven carpets and 95 for tufted carpets in quan- tity; in value the share is respectively 12 and 88%. Even in absolute terms, the production of woven carpets is expected to decline during the next few years. Pakistan now amount to 250,000 tons. From 1965 to 1969 average yearly increase of exports has been 20 percent. The carpet backing market is expected to continue to grow at a rate of 15 to 20 percent a year in the developed countries. Unfortunately, for the jute producing countries, competition from synthetic backing is threatening their markets. IV. COMPETITION FROM SYNTHETIC CARPET BACKING!' 27. About five years ago, a U.S. firm started the production of man- made carpet backing; now about 10 firms have entered this line of production. Five years ago, jute had a near monopoly in the primary carpet backing market; in 1968 jute lost 16 percent of the market and now has lost a third of the market2/, at a time when the supply of jute backing is plentiful. Over the years the quality of the man-made material has regularly improved so as to compare favorably with jute; competitiveness has also improved and now synthetic backing is less expensive than jute backing: 17 - 18 cents per square yard against 18.75 cents of jute. Five years ago, jute supplied 80 percent of the secondary backing market; now it accounts for 63 percent and most of the displacement took place during the first half of 1970. The reason behind this quick displacement is that rubber backing is becoming popular because it adheres well to the floor. Given the high cost of labor involved in fixing carpet with jute backing, the "do it yourself" rubber backing appeals to customers. 28. Because of its restrictive import policy, Europe is not a good market for jute goods. Except for a few quotes, the European industry mostly imports its raw jute from Pakistan and Thailand and processes its own end products. However for the last two years, raw jute requirements of the industry have been decreasing; in the UK, for instance, imports of raw jute averaged 40,000 tons a year during most of the 60s; in 1969, imports decreased to 34,000 and are not expected to be more than 27,000 tons in 1970. These decreasing requirements are due to two factors: demand for jute packaging materials continues to decline, while jute is rapidly losing its market to synthetic materials in carpet backing. 29. Jute manufacturers in Dundee have either partly or entirely shifted to the production of synthetic carpet backing3/ In Germany, where demand for carpeting has increased from 15 million square meters in 1966 to 40 million square meters 1969 and in the Netherlands where the demand is now about 15 million square meters, the additional requirements for backing have not at all 1/ We refer mostly to backing for tufted carpets. The status of jute in woven carpet backing is up to now apparently secure. But the importance of woven carpets is rapidly declining, because woven carpets are more than twice as expensive as tufted carpets. The present share of the carpet market is 5 percent for woven carpets and 95 percent for tufted carpets in quantity; in value the share is respectively 12 and 88 percent. Even in absolute terms, the production of woven carpets is expected to decline during the next few years. 2/ See Table V in Annex. 3/ Demand for carpets in the U.K. is now about 65 million square meters a year benefited jute; even in absolute terms, jute carpet backing production has decreased and according to the European Trade is bound to decrease further in the coming years. German and Dutch markets have grown sufficiently and are expected to continue to grow at such a rate (about 25 percent a year) that petrochemical corporations have inevitably beep attracted. For instance, one big corporation has built up huge capacities- located near the Dutch-German border, to take care of the growing requirements of these two markets. In France, demand for carpets remains small (about 25 million square meters a year) and is not expected to increase in the next few years, due to the specific expenditure pattern prevailing in this country. 30. By and large, these developments in Europe will only partly affect exports from India, since this country sells only comparatively small quanti- tius of jute goods (about 45,000 tons in 1968)Z/, but it will certainly affect exports of raw jute from Pakistan. 31. In the U.S. demand for carpet backing is expected to continue to rise at 12 to 15 percent per annum. The slowdown in the economy, and especially in the housing sector, may temporarily affect this growth in demand, but on an average this increase is expected to be sustained in the long run. More- over the extreme mobility of U.S. citizens increases the rate of replacement and there is a huge reservoir of potential demand (schools, commercial establish- ments, churches etc.). At present, the carpet backing market is valued 3t about U.S. $,250 million a year and by 1975 this amount may have doubled 3. 32. To assess the likely share of jute in the carpet backing market in the U.S. is a difficult task. There are obviously three possibilities: i) synthetic carpet backing will come in addition to jute backing, and both will grow more or less simultaneously; ii) synthetic carpet backing will grow rapidly but will leave some market to jute, which will have to be shared between Pakistan and India; iii) synthetics will gradually take over most of the carpet backing market. Consumer Reaction. 33. A carpet with a synthetic backing is much lighter and may have a different fep; from a jute backed carpet,especially if there is no secondary jute backingY . Until recently, it was thought that the lack of consumer accep- tance might confine the use of synthetic to primary backing; however, the recent 1/ For the production of polyester carpet backing. 2/ See Table XI. 3/ The tufted carpet industry now ranks 10th in the U.S. 4/ 90 percent of carpets manufactured in the U.S. have double-backing. - 10 - introduction of high density rubber in secondary backing, which allows the private gustomer hirself to fix the carpet on the floor has beceme popular. Moreover, it is quite possible that synthetic producers will improve their product to market competitively with jute in terms of performance in secondary carpet backing. There is no reason to believe that consumer reluctance will restrict the use of synthetic backing, if the price is attractive and the per- formance comparable with jute. Dealer Reaction. 34. Dealers have obviously no specific preference. They will behave according to consumer reaction and they will obviously have to sell what the carpet manufacturers produce, which in turn would be determined by consumer preferences. Nevertheless, the marketing conditions prevailing in the U.S. market make it possible to a certain extent for manufacturers to influence the taste of consumers and overcome reluctance on their part. Synthetics I'Ianufacturers' Strategy. 35. Nothing precise is known about the past or future investment plans of the petro-chemical complexes regarding production of polypropylene. It is even more difficult to isolate in a plant what part of the production is utilized for the manufacture of carpet backing and for other purposes. It is nevertheless thought that capacity utilization of equipment for carpet back- ing production is far from complete. It is estimated by the trade that only 30 to 35 percent of U.S. capacity is utilized. There are at present about five major and seven medium sized producers: total capacity is probably around 1 billion square yards of carpet backing, out of which about one half can only be utilized for the production of carpet backing, while the other half can be diverted for the production of other goods. Despite his low utiliza- tion of carpet backing capacities, one major producer is contemplating substan- tial additional investments for production of carpet backing, which clearly indicates the optimistic assessment made by polypropylene producers regarding the development of the demand for synthetic carpet backing. 36. The price of synthetic backing is now slightly lower than that of jute backing. It is likely that with better capacity utilization and technical improvement, prices will onntinue to decline. 37. Generally speaking, the costs of the woven polyolefin tape product tend to be lower than those of other woven fabrics due to four factors: a) raw material costs are low and tend to decline over the longer term due to processing experience, technical innovation and economies of large-scale production; b) the tape is produced by extrusion, and therefore eliminates the need for all the extensive pre-spinning and spinning operations which are required for jute; c) being a tape, its area of coverage in a woven fabric is greater than that of a fiber. As well as technical advantages in parti- cular end-uses this means that less raw material is needed to produce the woven fabric, with consequent savings in raw material costs, d) the tape has considerably greater tensile strength than jute and can therefore be woven on higher speed looms, so that the output of woven cloth in any given period is greater than for jute. 38. Synthetics manufacturers built part of their capacities to fulfill contracts with the U.S. Administration regarding the supply of sandbags for U.S. forces in Vietnam. WJith the de-escalation policy, these capacities have been freed for other production, like carpet backing, at the end of 1968. Fortunately for the manufacturers, the longshoremen's extended strike in the fall of 1968 on the eastern seaboard of the U.S. completely disrupted the supply from Pakistan and India: within three months, polypropylene fabrics in the use of primary backing increased from 16 to 30 percent. 39. If the recent strikes of jute workers and dockers in Calcutta have not led to more substantial inroads by synthetics, it is only because there was a slowdown in the market and a resultant oversupply situation in both synthetic and jute backing. However one can be sure that if the market had been booming, one would have witnessed a very substantial increase in the share of the synthetics in the market. Nevertheless, it is alarming for the jute producers, that during the first half of 1970, at a time when supply of jute backing was plentiful, the market share of jute declined from 69 percent to 61 percent in primary backing and from over 76 percent to 63.0 percent in secondary backing.1/ 40. It is obvious that the strategy of U.S. business is to take over a $250 million or so market, which is moreover expected to double every five years. Synthetics manufacturers are systematically hiring people from the jute business ir. the U.S. or elsewhere when they have extended connections in the carpet backing business; above all, they have huge resources at their disposal to achieve their goals. The apparent U.S. business strategy is to take advantage of every favorable situation (strikes in India, in Pakistan or in the U.S.) and especially of any "faux pas" of their jute competitors. Carpet Manufacturers' motivations. 41. A carpet manufacturer is faced with stiff competition within the U.S. market, therefore he tends to try to minimize inventory costs and to rely on regular supply at regular prices. The long supply lines aggravated by the closure of the Suez Canal between Asia and the U.S. market have caused a problem 1/ See Table IX. - 12 - in disruption of supply, arising both from jute crop patterns in Asia, the fluctu- ations in the price of jute and labor unrest in producing countries. Moreover, the carpet manufacturer sees that production of raw jute is stagnant and is not likely to increase in the future: in the long run, jute carpet backing will cease to be able to take care of the growing requirements of the carpet narket. Above all, the carpet manufacturer is told of the growing political uncertainty in both West Bengal and East Pakistan with recurrent strikes by the workers and/or the dockers, capital flight out of Calcutta, etc. AU these factors threaten his sources of supply and he is naturally inclined to look elsewhere for alternative supplies of suitable carpet backing materials, most notably, products offered by synthetic companies. Moreover, this line of supply is next door, thus by-passing another hazard - dock strikes in the U.S., which the carpet manufacturers had to face in the fall of 1968. Jute Producer's Possible Strategy 42. To remove the legitimate fears of the carpet manufacturers, jute pro- ducing countries have to devise a price policy, which will prevent the price of the commodity from fluctuating too widely; similarly they should build sufficient inventories in the U.S. in order to prevent any disruption of supplies. To counteract the synthetics manufacturers' strategy, jute producing countries must avoid any "faux pas". An example is the Indian export duty on jute carpet backing. These duties bring a significant amount to the exchequer and probably do not increase very much the price of the final carpet. But the psychological impact is more power- ful than is usually thought: carpet manufacturers consider such export duties as an arbitrary "monopoly tax", and resent it as such, even if the reasons for them are completely different in nature. Bureaucratic procedures must also be simplified 1 Some quarters also have advocated some drastic cut in the price of jute carpet backing in order to prevent any further building of capacity by the propylene manu- facturers, by making new investments in synthetics unprofitable g Such a step would be extremely difficult to implement and might lead to retaliation by manu- facturers of synthetics. 43. Stabilization of prices, and building up of inventories in the U.S. market for )ute backing would preferably require a common policy of both Pakistan and India 2 But given the present relations between the two countries, it will not be an easy task. Moreover, to be effective, this kind of arrangement has to come about quickly. Nevertheless, India who is by far the largest producer of jute backing could go along with such a scheme. Its implementation would of course imply a complete change in the structure of the economy of the jute industry. Examples of bureaucratic red tape: i) for some reasons, since January 1970, Indian manufacturers have not been able to pay their membership dues to the "U.S. Jute Carpet Backing Association%, which is a powerful organization trying to resist inroads by synthetic. ii) Detroit produces ten million cars a year and each car requires five yards of burlap; for four months in 1969, shipments of this commodity have been held up by the customs in Calcutta, after discovering that jute exporters have tried to by-pass the spirit of the law and sent the first shipments of these goods without paying export duties. This was obviously an internal matter to be solved internally and importers were not at all concerned. This experience has not been for- gotten by the automobile industry or by the synthetics manufacturers. The F.A.0. in its Commodity Bulletin Series, "Impact of Synthetics on Jute and Allied Fibers" (Rome 1969) advocated a price reduction of the order of 40 percent. At this stage it is impossible to determine the possible impact on the jute industry of the events which started in March 1971 in East Pakistan. - 11 - c) being a tape, its area of coverage in a woven fabric is greater than that of a fiber. As well as technical advantages in parti- cular end-uses this means that less raw material is needed to produce the woven fabric, with consequent savings in raw material costs: d) the tape has considerably greater tensile strength than jute and can therefore be woven on higher speed looms, so that the output of woven cloth in any given period is greater than for jute. 38. Synthetics manufacturers built part of their capacities to fulfill contracts with the U.S. Administration regarding the supply of sandbags for U.S. forces in Vietnam. With the de-escalation policy, these capacities have been freed for other production, like carpet backing, at the end of 1968. Fortunately for the manufacturers, the longshoremen's extended strike in the fall of 1968 on the eastern seaboard of the U.S. completely disrupted the supply from Pakistan and India: within three months, polypropylene fabrics in the use of primary backing increased from 16 to 30 percent. 39. If the recent strikes of jute workers and dockers in Calcutta have not led to more'substantial inroads by synthetics, it is only because there was a slowdown in the market and a resultant oversupply situation in both synthetic and jute backing. However one can be sure that if the market had been booming, one would have witnessed a very substantial increase in the share of the synthetics in the market. Nevertheless, it is alarming for the jute producers, that during the first half of 1970, at a time when supply of jute backing was plentiful, the market share of jute declined from 69 percent to 61 percent in primaxy backing and from over 76 percent to 63.0 percent in secondary backing. 17 4o. It is obvious that the strategy of U.S. business is to take over a $250 million or so market, which is moreover expected to double every five years. Synthetics manufacturers are systematically hiring people from the jute business in the U.S. or elsewhere when they have extended connections in the carpet backing business; above all, they have huge resources at their disposal to achieve their goals. The apparent U.S. business strategy is to take advantage of every favorable situation (strikes in India, in Pakistan or in the U.S.) and especially of any "faux pas" of their jute competitors. Carpet Manufacturers' motivations. 41. A carpet manufacturer is faced with stiff competition within the U.S. market, therefore he tends to try to minimize inventory costs and to rely on regular supply at regular prices. The long supply lines aggravated by the closure of the Suez Canal between Asia and the U.S. market have caused a problem 1/ See Table IX. - 12 - in disruption of supply, arising both from jute crop patterns in Asia, the fluctu- ations in the price of jute and labor unrest in producing countries. Moreover, the carpet manufacturer sees that production of raw jute is stagnant and is not likely to increase in the future: in the long run, jute carpet backing will cease to be able to take care of the growing requirements of the carpet market. Above all, the carpet manufacturer is told of the growing political uncertainty in both West Bengal and East Pakistan with recurrent strikes by the workers and/or the dockers, capital flight out of Calcutta, etc. AUl these factors threaten his sources of supply and he is naturally inclined to look elsewhere for alternative supplies of suitable carpet backing materials, most notably, products offered by synthetic companies. Moreover, this line of supply is next door, thus by-passing another hazard - dock strikes in the U.S., which the carpet manufacturers had to face in the fall of 1968. Jute Producerts Possible Strategy 42. To remove the legitimate fears of the carpet manufacturers, jute pro- ducing countries have to devise a price policy, which will prevent the price of the commodity from fluctuating too widely; similarly they should build sufficient inventories in the U.S. in order to prevent any disruption of supplies. To counteract the synthetics manufacturers' strategy, jute producing countries must avoid any "faux pas". An example is the Indian export duty on jute carpet backing. These duties bring a significant amount to the exchequer and probably do not increase very much the price of the final carpet. But the psychological impact is more power- ful than is usually thought: carpet manufacturers consider such export duties as an arbitrary "monopoly tax", and resent it as such, even if the reasons for them are completely different in nature. Bureaucratic procedures must also be simplified M Some quarters also have advocated some drastic cut in the price of jute carpet backing in order to prevent any further building of capacity by the propylene manu- facturers, by making new investments in synthetics unprofitable , Such a step would be extremely difficult to implement and might lead to retaliation by manu- facturers of synthetics. 43. Stabilization of prices, and building up of inventories in the U.S. market for jute backing would preferably require a common policy of both Pakistan and India 2. But given the present relations between the two countries, it will not be an easy task. Moreover, to be effective, this kind of arrangement has to come about quickly. Nevertheless, India who is by far the largest producer of jute backing could go along with such a scheme. Its implementation would of course imply a complete change in the structure of the economy of the jute industry. Examples of bureaucratic red tape: i) for some reasons, since January 1970, Indian manufacturers have not been able to pay their membership dues to the "U.S. Jute Carpet Backing Association", which is a powerful organization trying to resist inroads by synthetic. ii) Detroit produces ten million cars a year and each car requires five yards of burlap; for four months in 1969, shipments of this commodity have been held up by the customs in Calcutta, after discovering that Jute exporters have tried to by-pass the spirit of the law and sent the first shipments of these goods without paying export duties. This was obviously an internal matter to be solved internilTy and importers were not at all concerned. This experience has not been for- gotten by the automobile industry or by the synthetics manufacturers. The F.A.0. in its Commodity Bulletin Series, "Impact of Synthetics on Jute and Allied Fibers" (Rome 1969), advocated a price reduction of the order of 40 percent. At this stage it is impossible to determine the possible impact on the jute industry of the events which started in March 1971 in East Pakistan. - 13 - 44. We have no absolute evidence that if nothing is done, jute would be more or less completely displaced from the carpet backing market: it is, nevertheless, our conviction based on the numerous contacts we had with the trade in India, in the U.S. and in Europe. 45. New end-uses for jute can of course be found, but at present they have little prospects. Indian exporters are for instance investigating the way jute could share a small part of the $4 billion curtain and wall-covering U.S. market. Technical problems have been solved; ten mills in India have been set up or are being set up to talce care of this market, but the marketing policy has not yet been decided. If successful, India exporters hope to catch one percent of the market, i.e. $40 million at the retail level, which could mean an additional export of $15 million for India. Some other uses could certainly be found, but on the whole these additional exports would not offset the decrease in exports of jute backing, if synthetics displace jute in the backing market. V. CONCLUSIONS 146. The 1969-70 offtake of jute goods from India was U.S. $288 million in 1969-70. The long-term position of jute is dismal. It is losing rapidly in sacking to woven polypropylene, paper and bulk handling: moreover India has been priced out of the external markets by Pakistan, except in the markets with which India has bilateral arrangements. 47. Packing materials are becoming more and more sophisticated to compete with hessian and here again India is going gradually to lose her external markets to Pakistan. 48. The growth in the industry has been in yarn and carpet backing cloth sustained by the U.S. tufted carpet boom and housing demand. Here again, Pakistani competition may be felt very soon; the most dangerous threat is how- ever the growing and successful competition of woven polypropylene backing in primary backing and of other materials in secondary backing. 49. To retain a substantial share of the market, jute producing countries must cut their prices and fix them on a long term basis, because a fluctuating commodity will never be able to compete lastingly with a commodity whose prices are stable and might-even decrease. Ioreover, exporting countries must build up an adequate buffer stock in the U.S. so as to prevent any disruption of supply. 50. To implement such as scheme would be extremely difficult and costly; moreover it has to be implemented urgently before it is too late. 51. In developed countries and in Latin America demand for jute goods is bound to decrease; in Africa, the setting up of factories for processing local fibers will accordingly reduce requirements for imports; most of the increase in consumption will take place in Asia, chiefly in India. The U.S.S.R. is an unknown market but there is now no reason to believe that its import requirements would not increase. - 14 - 52. By and large the situation is uncertain. In quantity, Indian exports have decreased considerably for the last five years; in terms of value, however, exports remained at a yearly average of $300 million, because of the exports of more valuable commodities. Unfortunately, present developments lead one to believe that Indian exports, in value and quantity, are likely to decrease and might do so very sharply, if necessary steps are not taken in an urgent manner. 53. Even if adequate measures are successfully implemented by Asian produc- ing countries it nevertheless appears that Indian and Pakistani programs regard- ing the future development of jute production and jute industry must probably be reviewed in the light of these new developments in the world market. If no adjustments are made to take them into account, there is a real danger of seeing scarce investment resources misdirected. November 3, 1970 TABLE I PRODUCTION OF JUTE AND MESTA IN INDIA (in Million bales) 1949/50 1955/56 1960/61 1961/62 1962/63 Jute 3.30 4.48 4.13 6.36 5.44 Mesta 0.67 1.17 1.13 1.88 1.74 Total 3.97 5.65 5.26 8.24 7.18 1963/64 1964/65 1965/66 1966/67 1967/68 1968/69 1969/7ci/ Jute 6.08 6.01 4.47 5.36 6.32 3.05 5.61 Mesta 1.90 1.60 1.29 1.22 1.27 0.91 1.14 Total 7.98 7.61 5.76 6.58 7.59 3.96 6.75 Source: Economic Survey 1969-70. Note: These figures differ slightly from those published by IJMA, because the coverage and the period are different. 1/ Source: Official estimates of the Ministry of Food and Agriculture. TABLE II EXPORT OF SACKING FROM INDIA AND PAKISTAN (000 tons) Indian Year India Pakistan Total (1)+(2) share (1)/(3) (1) (2) (3) (4) in % 1957 429.7 6o.4 490.1 87 1958 345.8 78.5 424.3 81 1959 354.6 135.7 490.3 72 1960 312.9 123.8 436.7 71 1961 283.7 140.2 423.9 67 1962 292.2 164.5 456.7 64 1963 242.6 157.5 400.1 60 1964 234.9 157.6 392.5 60 1965 283.5 181.1 464.6 61 1966 173.3 234.6 407.9 42 1967 185.5 232.9 418.4 43 1968 93.6 242.7 336.3 28 1969 48.2 248.2 296.4 16 Sources: DCI& - Calcutta Pakistan Jute Mills Association TABLE III EXPORT OF HESSIAN FROM IDNVA AND PAKISTAN (000 tons) Indian Year India Pakistan Total (1)+(2) Share (M)1(3) (1) (2) (3) (4) in % i957 399.1 29.7 428.8 93 1958 399.4 36.9 436.3 91 1959 430.5 50.7 481.2 89 1960 391.h 61.9 453.3 86 1961 357.9 61.4 419.3 85 1962 457.4 65.7 523.1 87 1963 463.8 71.4 535.2 86 1964 487.8 66.8 554.6 88 1965 448.1 79.5 527.6 85 1966 372.8 95.9 468.7 79 1967 382.3 103.0 485.3 78 1968 338.2 155.2 493.4 68 1969 251.7 195.2 446.9 56 Sources: DCI&S - Calcutta Pakistan Jute Mills Association TABLE IV EXPORTS OF CARPET BACKINGS FROM TTNDIA AND PAKISTAN (000 tons) Indian Year India Pakis an.n Total (1)+(2) Share (1)/(3) (1 (2) (3) (4) in % 1957 8.0 neg 8.0 100 1958 19.2 19.2 100 1959 30.1 30.1 100 1960 35.3 35.3 100 1961 41.6 41.6 100 1962 57.7 57.7 100 1963 88.3 88.3 100 1964 106-.6 1.2 107.8 99 1965 100.0 6.5 106.5 94 1966 131.5 13.2 144.7 90 1967 141.6 19. 161.0 87 1968 179.8 25.0 204.8 87 1969 219.3 29.2 248.5 88 1/ Except for 1969, refers to the jute year (July-June) Sources: DCI&S - Calcutta Pakistan Jute Mills Association TABLE V EXPORTS OF JUTE GOODS FROM INDIA AND PAKISTAN (000 tons) Indian Year inila Pakistan Total (1)+(2) Share (1)/(3) (1) (2) (3) (4) in % 1957 873.5 90.4 963.9 90 1958 806.2 115.8 922.0 87 1959 874.0 188.4 1062.4 82 1960 810.4 190.7 1001.1 81 1961 759.8 204.9 964.7 79 1962 874.4 233.1 1107.5 79 1963 874.6 234.2 1108.8 79 1964 931.2 234.2 1165.4 80 1965 929.2 282.4 1211.6 77 1966 746.1 361.8 1107.9 67 1967 768.5 370.7 1139.2 67 1968 671.4 454.0 1125.4 59 1969 569.9 484.9 1054.8 54 Sources: DCI&S - Calcutta Pakistan Jute Mills Association TABLE VI Apparent World Consumption of Jute by Major Countries 1963 - 1967 (000 metric tons) 1963 1964 1965 1966 1967 1. Developed EEC 802 270 278 204 284 Goods only UK 172 174 170 162 161 Other Europe 139 118 120 129 119 Goods only USA 464 497 470 460 425 Includes Raw Jute Canada 48 47 45 50 51 Japan 74 62 80 81 113 Oceana 125 127 133 105 116 Total Developed 1,324 1,295 1,296 1,271 1,269 2. Developing: A. Other Latin America 233 234 220 178 165 Near East 37 34 28 34 44 Africa 273 295 347 285 283 Other Asia 145 152 158 127 129 Total 688 715 753 624 621 B. Asian Producing: India 429 358 512 505 424 Includes village consumption Pakistan 114 90 140 137 108 Thailand 46 70 54 60 70 Nepal 2 3 3 3 3 Total 591 521 709 705 605 Total Developing 1,279 1,236 1,462 1,329 1,226 3. Centrally Planned: USSR/EE 223 330 299 323 315 Asian 394 463 508 530 558 Total Centrally Planned 607 792 807 853 873 Uncorr. Total Cons. 3,210 3,323 3,565 3,453 3,368 4. Adjustments Raw Jute EEC + 28 + 45 + 34 + 41 + 50 Raw Jute:Other & Eur.+ 10 + 10 + 10 + 10 + 10 Waste (3%) + 95 +100 +105 +105 +100 Total Corrected Cons. 3,343 3,478 3,714 3,609 3,528 Source: Derived from FAO and country statistics including Industrial Fibres and European Jute Industries Statistics. TABLE VII Apparent World Consumption of Jute Goods by Areas: 1937 - 1967 (000 metric tons) Average Average 1937 % 1948-53 1954-59 63 % 64 65 66 % 67 % 1. Developed 1253 (60) 926 1,138 1,324 (43) 1,295 1,296 1,271 (40) 1,269 (39) 2. Centrally Planned 85 (4) 230 384 607 (18) 792 807 853 (23) 873 (25) 3. Developing, as 678 (36) 722 900 1,279 (39) 1,236 1,462 1,329 (37) 1,226 (36) subdivided below: 61-63 Avg. 64-66 Avg Asia/Near East 360 (21) 387 518 704 (2o 819 (24) 778 (23) Africa 115 ( 5) 131 150 197 (7) 244 ( 7) 283 (8) Latin America 203 (10) 204 232 228 ( 8) 211 ( 6) 165 ( 5) World Total 2,016 1,878 2,422 3,210 3,323 3,565 3,453 3,368 Corrected Consumption 3,343 3,478 3,714 3,609 3,528 Source: Derived from FAO and country statistics: data from year to year are not strictly comparable as there are often omissions in reporting wastage, stock holdings and raw jute consumed other than goods. The corrected consumption from 1963-1967 includes most of these factors and is comparable. TABLE VIII World Imports and Exports of Jute Goods (000 metric tons) 1948-53 1954-59 1961-63 1964-66 1937 Average Average Average Average 1967 IMPORTS % % % % % % Developed 689 (59) 500 (56) 579 (56) 758 (62) 848 (60) 864 (65) Countries Developing 474 (40) 379 (42) 417 (L1) 404 (33) 419 (29) 297 (23) Countries 1/ Centrally Planned 8 (1) 15 (2) 30 (3) 56 (5) 162 (11) 171 (12) Total Trade 1,171 894 1,026 1,218 1,429 1,332 EXPORTS India 1,029 815 859 865 928 769 Pakistan - - 78 227 289 383 Belgium 30 44 57 59 69 71 France 11 18 25 18 18 17 Portugal - - 1 5 15 14 UK 55 26 25 22 17 12 Other Europe 29 30 29 20 25 26 Rest of World 49 24 41 34 48 38 Total Trade 1,203 957 1,115 1,250 1,409 1,330 1/ Primarily USSR/EE until 1960s. Asian Centrally Planned trade insignificant. Source: FAO 1969 TABLE IX Consumption of Carpet Backing (in millions of square yards) First Second Third Fourth First Second Quarter Quarter Quarter Quarter Quarter Quarter 1969 1969 1969 1969 1970 1970 Primary 109 117 109 126 110 112 Jute 73 77 72 87 73 68 Secondary 91 107 101 115 98 101 Jute 70 82 77 87 66 63 TOTAL 200 294 210 241 208 213 Jute 143 169 149 174 139 131 Percentage-wise Use of Backing, in 1968, 1969 and the First 'TO Quarters of 1970 First Second Third Fourth First Second Quarter Quarter Quarter Quarter Quarter Quarter 1968 1969. 1969 1969 1969 1970 1970 Primary Jute 80.4 67.4 65.8 65.7 69.0 65.0 61.1 Cotton 1.9 1.4 1.6 1.6 n.a. n.a. n.a. Manmade 16.0 28.6 30.7 30.3 29.9 30.5 32.8 Others 1.7 2.6 1.9 2.4 n.a. n.a. n.a. Secondary Jute 72.4 77.0 76.4 76.4 76.4 66.2 63.0 Foam H.D.R. 15.1 15.5 16.2 16.0 16.8 23.8 25.6 Other Foam Cushion - (Vinyl, etc.) 2.8 0.7 0.8 0.8 1.0 3.1 3.6 Other 9.7 6.8 6.6 6.8 5.8 7.0 7.8 Source: Current Industrial Reports - U.S.Department of Commerce - Bureau of the Census. TABLE X PRODUCTION OF JUTE GOODS IN INDIA (000 metric tons) (Calendar Year) Equivalent Jute Consumption Carpet Cotton 100,000 Year Hessian Sacking Backing Bagging Others Total bales 1957 420.9 557.5 68.0 1,046.4 61.52 1958 413.6 591.7 5.1* 12.3 56.o 1,078.7 61.45 1959 465.2 511.9 16.3 25.1 50.0 1,068.5 61.27 1960 429.0 549.5 23.1 35.8 46.8 1,08h.2 62.36 196b 355.7 483.7 27.3 41.6 62.0 970.3 54.58 1962 h82.7 551.8 44.6 39.5 68.2 1,186.8 67.35 1963 528.6 507.1 87.5 42.9 70.1 1,236.2 71.01 1964 536.6 514.6 94.6 48.8 76.8 1,271.4 73.81 1965 529.4 590.5 96.9 51.2 67.3 1,335.3 76.31 1966 427.0 503.2 107.3 20.5 61.6 1,119.6 64.19 1967 463.6 481.3 1u4.1 16.1 71.3 1,156.4 66.09 1968 398.0 427.2 170.6 18.5 70.6 1,064.9 62.75 1969, 287.1 306.9 228.7 22.6 48.3 893.6 51.4- Source: Annual summary of Jute and Gunny Statistics - Indian Jute Mills * 9 months TABLE XI EXPORT OF JUTE GOODS FRO'i INDIA BY COUNTRIES (000 metric tons) (calendar year) B1SSLU- 1956 1957 1958 1959 1960 1961 1962 1963 U.K. 47.9 25.2 41.1 38.1 39.0 23.6 34.6 28.2 Rest of Europe 4.9 17.3 33.9 43.4 48.4 61.0 70.9 ) Near East - 4.8 3.0 4.5 5.5 5.0 11.6 ) 101.0 Far East 4.7 8.7 8.5 12.8 17.4 5.3 5.7 7.6 Africa 9.8 23.4 13.7 19.1 21.9 23.2 25.1 22.4 U.S.A. 193.6 186.3 183.0 208.5 182.5 192.1 229.3 248.4 Canada 35.9 33.1 37.0 40.1 39.7 36.3 47.7 51.6 Argentina 36.4 65.3 62.7 52.3 35.5 13.0 45.6 42.9 Rest of America 11.5 15.6 11.8 15.5 10.2 14.5 15.8 17.2 Australia 13.9 16.6 15.1 15.8 16.6 14.7 16.5 19.7 New Zealand 3.0 6.2 6.1 4.4 4.5 3.8 4.1 4.4 Others 47.5 4.6 2.7 6.1 5.5 7.0 8.2 8.7 TOTAL HESSIAN 409.1 407.1 418.6 460.6 426.7 399.5 515.1 552.1 SACKING U.K. 13.5 10.9 13.6 13.0 11.0 8.8 6.9 8.1 Rest of Europe 10.2 8.0 13.3 15.1 17.2 17.2 22.6 ) Near East 5.8 3.0 2.0 7.2 4.2 0.8 8.3 ) 29.9 Far East 78.7 92.3 58.1 119.9 79.1 47.2 53.9 30.1 Africa 81.9 113.9 85.8 64.2 60.9 84.6 91.1 54.5 U.S.A. 1.9 9.7 5.5 7.9 7.5 7.0 8.4 5.3 Canada - 0.2 0.1 0.2 0.1 - - 0.1 Argentina - 2.3 1.9 2.0 2.3 1.2 1.0 0.5 Rest of America 68.3 80.2 64.3 45.3 52.8 57.2 41.4 46.5 Australia 93.6 82.7 67.5 57.4 57.4 36.6 38.7 33.4 New Zealand 10.3 10.9 13.5 10.9 12.5 11.7 9.2 10.1 Others 51.3 15.6 20.2 11.5 7.9 11.4 10.7 24.1 TOTAL SACKING 415.5 429.7 345.8 354.6 312.9 283.7 292.2 242.6 ALL JUTE MMIUFACTURES 876.8 873.5 806.2 874.0 810.4 759.8 874.4 874.6 EXPORT OF JUTE GOODS FROM 3IDIA BY COUNTRIES TABLE XI (continued) (000 metric tons) (calendar year) HESSIAN 1963 1964 1965 1966 1967 1968 U.K. 28.2 37.0 27.6 19.2 29.0 18.8 Rest of W. Europe 45.9 18.7 19.0 10.2 18.5 23.4 U.S.S.R. 41.9 76.2 73.1 57.8 54.6 58.5 Rest of E. Europe 13.2 17.4 19.2 19.1 20.3 18.0 Far East 7.6 12.4 9.6 3.1 5.4 6.5 Africa 22.4 28.7 39.6 18.9 20.0 16.4 U.S.A. 248.4 256.0 242.8 154.0 149.6 123.0 Canada 51.6 44.9 45.8 37.7 36.7 32.1 Argentina 42.9 62.1 20.9 4.5 2.4 1.6 Rest of America 17.2 16.0 15.8 13.6 8.4 7.2 Australia 19.7 18.9 21.2 17.3 22.9 21.2 New Zealand 4.4 3.7 5.5 3.8 4.4 3.9 Others 8.7 2.4 8.0 13.6 10.1 7.6 TOTAL HESSIAN 552.1 594.h 5h8.1 372.8 382.3 338.2 CARPET BACKING SACKING ' 1966 1967 1968 U.K. 8.1 9.7 5.6 2.8 4.4 0.9 ' 0.5 1.1 0.2 Rest of W. Eurcpe 21.8 8.5 8.5 4.0 7.5 1.2 ' 1.8 5.7 6.9 U.S.S.R. 2.3 28.5 39.5 58.4 67.2 45.1 ' 0.1 - - Rest of E. Europe 5.8 6.9 11.6 11.8 14.9 2.6 ' 0.3 0.6 1.1 Far East 30.1 41.4 30.0 7.2 12.3 6.2 ' - 0.2 3.0 Africa 54.5 55.5 95.0 47.0 35.8 13.4 0 0.3 0.6 0.2 U.S.A. 5.3 2.9 6.0 4.9 3.4 3.1 1 117.7 121.6 152.0 Canada 0.1 0.1 - - - - ' 7.4 7.4 10.6 Argentina 0.5 1.2 0.8 0.1 0.1 - I - - - Rest of America 46.5 17.4 25.6 7.1 3.6 1.3 ' 0.2 0.3 0.7 Australia 33.4 36.6 37.0 16.4 21.0 12.9 ' 2.1 3.1 3.6 New Zealand 10.1 9.0 14.2 6.6 5.7 1.0 I 1.0 1.0 1.4 Others 24.1 17.2 9.7 7.0 9.6 5.9 ' 0.1 _ TOTAL SACKING 242.6 234.9 283.5 173.3 185.5 93.6 ' 131.5 141.6 179.8 ALL JUTE MANUFACTURES 874.6 931.2 929.2 746.1 768.5 671.4 Source: I.J.M.A., Calcutta RESTRICTED Report No. SA - 18a INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION EXPORTS OF MARINE PRODUCTS INDIA May 27, 1971 South Asia Department IDIA E2PORTS OF MARINE PRODUCTS TABLE OF CONTENTS Page SUMMARY . . . . . . . . . . . * * * * ....*.*...*.0... I. INDIAN FISHERIES . . . . . .*.*.*.*. . .. . . . 1 II. INDIANSHIMP f INDUSTRY ............... . 3 III. PRODUCTIONPRO BLEMS ................. . 4 IV* EXPORTS . . . . . . . . . . . * * * * * * * * * * * * 9 V. CONCLUSIONS ... . . ..* . . * . *.*.*...*.*.*......... 12 ANNEXES Tables I - Growth of Marine Products Exports II - Export Pattern of Marine Products III - Major Markets for Indian Frozen Prawns IV - Region-wise Exports of Marine Products V - Monthly Average Wholesale Price for Indian Shrimps in the United States Market VI - MainShrimp Producing Countries VII - Imports of Shrimps into U.S.A. This report is based on the findings of a missioncomposed of Messrs. Christian Ladonne and Alberto de Capitani wAhich visited India and European cities in June/July, 1970. INDIA EXPORTS OF! MARINE. PRODUCTS SUi[MARY 1. India's fisheries, the eighth largest in the world, are charac- terized by small coastal fishing vessels and traditional fishing practices. Development is under way, however, and India's fishing industry faces in the long run both a challenging and a promising future. 2. One of the most significant developments in Indian fisheries has been the unquestionable success of India's shrimp industry in moving dyna- micaIly into major world markets. In 1951 the first freezing plant was opened in Cochin;, commercial shipments began in 1953, with 13 tons of ex- ports; by 1965, India had become the second'largest exporter of shrimp to the United States, and it has since maintained the position. In 1969, exports of shrimps amounted to about 2h,000 tons. From US$5 million in 1951, export earnings of marine products rose to US$44 million in 1969. This spectacular development took place mostly thanks to the initiative of small entrepreneurs. 3. The shrimp market is a seller's market and the imbalance-between supply and demand is expected to worsen in the coming decade to the benefit of producing countries. For the time being, India exploits only a fringe of her tremendous natural resources potential. In the coming five years, increase in production will come mostly through more intensive exploitation of the eastern coastal waters, as the southwestern coast is now fully exploited and probably overfished. However, off-shore fishing development, as contemplated by the Fourth Five Year Plan, will probably not materialize because it requires different sets of measures, like the building of infra- structure, availability of adequate financing for purchase of trawlers, training of crews, the choice of an adapted import policy, etc., 7which have to be defined in a comprehensive way. Nevertheless, it is expected that at least 30 big trawlers (up to 86 feet in length) operated by Indian and US Corporations dill be commissioned during the Fourth Plan period. I. INDIAN FISHERIES 1. From time immemorial, but in. a very limited manner, India has been engaged in fishing along its 3500 mile-long coast. The world's oceans have an estimated fishery potential of 118 million tons against which the total marine catch in 1968 stood at 6h.0 million tons. The average yield per square kilometer of.the Atlantic, Pacific and Indian oceans has been placed at 0.17, 0.14 and 0.03 tons, respectively, during 1966/68.1/ The major reason for the low yield of the Indian Ocean has been ascribed to inadequatX exploitation and fishing restricted to the inshore areas up to ten fathoms, 2/instead of offshore and deep sea fishing beyond 10 fathoms and.40 fathoms, respectively. 2. With a labor force of over one million, India currently exploits only a small portion of the fishery potential of the Indian seas. Out of the present marine fish landings, estimated at over 1.5 million tons in 1968, about three-quarters are landed on the west coast of India, although investigations and studies have indicated vast potential on the east coast. Various exploratory surveys have revealed that a potential of 8 to 12 million tons exists in the Indian Ocean, including offshore and deep sea resources. 3. Whereas marine fish landings of the world have increased from 33.2 million tons in 1958 to 64.0 million tons in 1968 2/ i.e. at a yearly growth rate of 6.9 percent, those of India increased at an annuaL, rate of only 3.5 percent from 1.06 million tons to over 1.5 million tons. - As mentioned earlier, the major factor responsible for the slower rate of increase has been under exploitation of the rich potential of the Indian seas and especially the offshore and deep sea regions of the Arabian sea and the Bay of Bengal, owing, among others, to meagre infrastructural arrangements, such as fishing harbors and landing and berthing facilities, non-availability of large fishing vessels for deep sea and high sea operations and lack of storage and processing capacity. The result of these poor environmental conditions is that not only are catches low, but the prices are extremely high, which limits the local demand to higrh- income groups and prices India out of the world market except for a few products like shrimps. For instance, there is a good world demand for canned tuna, which is already processed in India, but she cannot export this product because its price is three times the world market price. This is all the more unfortunate since the Indian Ocean is one of the few areas where tuna fishing could still be increased. Another inhibiting factor is the high price of canning materials. 1/ Source: Survey of India's export potential of Marine Products. Indian Institute of Foreign Trade (1970). 2/ A fathom is a unit of length equal to 6 feet used for measuring the depth of water. 3/ Source: Yearbook of Fishery Statistics - 1968 - FAO 4/ Source: Yearbook of Fishery Statistics - 1968 - FAO - 2 - 4. An idea of the structure of the marine products industry in India as of 1968 can be had from the following estimates: 1/ Fishing Fleet Nos. Indigenous craft 94,000 Small mechanized boats (6m. to 12 m.) 7,600 Large vessesl (13.Om to 27m) 49 Of these a large number of indigenous craft operate off the coast of Tamil Nadu (30,000), Andhra Pradesh (21,000), Kerala (22,600), and Maharashtra (8,300). The major concentration of small mechanized boats is, however, to be found on the coasts of Maharashtra (2,400), Gujarat (1,700), Kerala (1,700) and Tamil Nadu (1,000). Processing Sector Annual installed Units capacity Freezing 48 59,000 Canning 42 11,4h0 Of the total freezing and canning capacity as much as 83 percent and 85 percent, respectively, is concentrated in Kerala. Of the 168 exporters, as many as 114 are also situated in Kerala. Ninety export firms in Kerala are responsible for 89 percent of the total seafood exports. Other centers of importance in respect of freezing, canning and exports are Bombay, Mangalore and Madras. 5. A rational exploitation of the huge potential of marine resources will undoubtedly take a very long time to materialize. Some limited progress has already taken place and in the few areas where the fishing industry has been properly organized, the economy of fishing villages has been drastically changed. However, the problems are of such a magnitude that an answer to them cannot be expected overnight. Gradual mechanization of the fleet, proper financing channels, construction of harbors,-of storage and processing facilities and chiefly the training of a skilled manpower will certainly take quite a long time. It is all the more regrettable, because if the market was properly organized, demand for fish in India from a protein-hungry population could be tremendous, and the export potentials could be important. 1/ Survey of Indiats export potential of Marine Products IIFT. -3- 6. Except for a very small part of the population which refuses to eat meat, and even eggs, there is absolutely no inhibition against fish eating. Marine fish are at present consumed in coastal areas, in urban centers and in "traditional" areas like Bengal. Nevertheless, fish is not an unknown product for people'living in inland areas. Apart from rivers, there are 1.0 million hectares of cultivable water areas (village tanks and ponds), of which only 60 percent is utilized. At existing average yields, if the entire fresh water area was cultivated, the annual production wTould be of the order of 600,000 tons. If the reclaimable water areas (about 650,000 hectares) -were also used, production could well exceed 1 million tons. With improved cultural practices, total yield could be over 5 million tons. 1/ Some panchayats in Andhra Pradesh, in Madhya Pradesh, and in Uttar Pradesh already derive most of their income from pisciculture. 2/ Under these circumstances it would not be difficult to create demand for marine fishes nearly everywhere in India, provided that a good market organization were to be set up and that the products were low-priced. 7. In addition,-an organized fishing industry could greatly improve the economy of the fishermen who generally are extremely poor and indebted, and could provide job opportunities in a big way. But in India, resources are scarce and priorities numerous, so that the Fourth Plan, wqhich is well aware of the huge potential benefits of the development of marine fisheries, could not allocate more than Rs 830 million as outlay on fisheries for the five year period. 8. If the general performance of the fishing industry appears to be poor and if its medium-term prospects are not too bright, there is however a success story, par excellence, to be told: that of the shrimp industry. II. INDIAN SHRIMP INDUSTRY 9. Until the early 1950s India's surplus of shrimp was dried, salted or pickled and sold in nearby countries. It wqas in 1951 that the first freezing plant was opened in Cochin: it was a joint venture with a U.S. firm, which provided marketing facilities, but the capital was Indian. Commercial shipments began in 1953. Initial conditions were poor for the export trade; catches were spread over iwide areas of coast, transport facilities to plants were poor, no electricity was available (refrigeration equipment was run with diesel engines), no trained employees were available, no suitable packaging material was available, and steamers with frozen food storage were few in number. Gradually plate freezers were installed, flake ice plants constructed, packaging improved and other problems overcome. In 1956 the big expansion occurred and several freezers began operations in the business. 1/ Source: Fisheries Development - FAQ - Rome 1969. 2/ Source: International Conference on Investment in Fisheries - FAQ 10. Fifteen years ago, India was not on the map in the international shrimp trade. Now India is the world's third largest producer of shrimps, exceeded only by the United States and Mexico. In 1967, India's catch represented over 12 percent of the world's shrimp catches. 1/ By 1965, India had become the second largest exporter of shrimp to the United States, after Mexico. In 1961, India provided 2.6 percent of the total United States im- port requirements; in 1969, despite the fact that United States requirements increased by over 50 percent, India supplied 18 percent of U.S imports. The most remarkable feature of this development is that it took place in a spontan- eous manner with ecarcely any concerted plans; still more remarkable, the Indian shrimp processing industry is still characterized by small independent firms. 11. The shrimp industry in India has thus been primarily a development operated by private capital and private initiative, without much government interference. However, the government has assisted the industry by waiving duties on essential import items needed to develop it. It also introduced quality control in the industry: preshipment inspection and approval by a government authority of all goods for export has been compulsory since early 1965, and this was a major step in the way to improve export performance. Moreover, in cooperation with the industry, the government fomed the Marine Export Promotion Council, located in Ernakulam, Kerala. This organization promotes new markets, new products, and new processes for its members and re- presents the industry in its contacts with federal agencies III. PRODUCTION PROBLEMS 12. Shrimping is done along all of India's coast. However, the lack of ports is a limiting factor in the growth of the industry in many areas. The major producing area is the southwestern coast. Cochin is the center of the industry. Other important areas on the west coast are Bombay and the Gulf of Kutch. The east coast shrimp industry, centered in the Visakhapatnam area, is not yet as important as the west coast fishery but has equal potential and is developing rapidly. 13. According to the central Marine Fisheries Research Institute, shrimp catches have increased very slowly since 1962. FAO statistics show a similar trend. However, as shown in the following table, export figures differ somewhat: 1/ Bureau of Commercial Fisheries - United States Department of Interior. -5- Shrimp landings Exports of Shrimps 3/ (in'tons of life weiLjh) (in tons of meat weight) 1/ 2/ 1960 70,600 -- 4,200 (1958,FAO) 1961 62,800 --- --- 1962 83,200 84,200 6,100 1963 81,600 83,600 8,000 1964 94,900 99,300 9,800 1965 77,300 82,000 9,800 1966 90,900 94,500 13,300 1967 91,600 99,400 14,800 1968 99,800 105,800 18,000 1969 n.a. n.a. 2h,000 14. It is probably difficult to accept the figures pertaining to shrimp landings at their face value, but one probably can more or less accept the trend they showv. In 1962, figures of catches and exports strongly suggest that collection of shrimps for processing purposes was extremely poor and this situation prevailed up to 1966. HowTever, the incentives provided by the devaluation of the rupee in June 1966 4/ brought a definite change. With the prospects of substantial profits on their export sales, processors did their best to improve the rate of collection by promoting better marketing facilities and by offering higher prices to fishermen. The result was that in 1965, exports represented scarcely one-fourth of total catches 5/ as recorded in the official statistics, and accounted for more than one-third in 1968. In 1969, this proportion has probably stepped up considerably (between 40 to 50 percent). How this rate of collection could be increased in the future is difficult to say. About a third of the shrimp catch has no commercial value; being very small crustaceans they are consumed in production centers. A part of the catch with commercial value is also either consumed on the spot for lack of processing units in the region, lack of coastal feeder roads and freeze trucks or is sent to urban centers where marketing facilities exist. However, in Kerala, where 80 to 85 percent of the industry is concentrated, the rate of collection cannot possibly be increased, except in a very marginal way. 1/ FAO Catch andLanding Statistics 2/ Central Marine Fisheries, Research Institute. 3/ D.G.C.I. and S - Calcutta. 4/ The Indian Rupee was devaluated by 57.5 percent, in terms of $. 5/ The rate of conversion of life weight to processed shrimps is about 2 to 1. -6- 15. There is, indeed, definite evidence that the upper limit of production from southwestern coastal waters - the main production center - has been reached. A downward trend in individual shrimp catches has been noticeable in Cochin since 1963, and this has created a steadily ggro in-> problem for processors and exporters. Mlany of the processing plants in Cochin are working at only 25 percent of capacity because of shortage of raw materials and processors are compelled to ccmpete for the raw material by offering higher prices to the small fishermenl'. This has led to an unhealthy multiplication of small boats. As a result, since 1963 the total catch has increased, but the catch per boat is falling. Moreover the size of shrimps caught is also decreasing, a sign that overfishing is probably leading operators to net them before they are fully grown. The cost of netting one kilogram of shrimp is rising to the point where the margin of profit for fishermen using traditional methods /could become very small. 16. In the Gulf of Kutch and Bombay coastal waters, shrimp catches and the rate of collection by the industry can be increased provided that enough processing plants are installed. Coastal waters centered around Visakhapatnam are becoming gradually more intensively exploited; processors are also starting to invest -around Bhubaneswar. According to the trade, Andhra Pradesh and Orissa coastal waters have a potential equal to the Kerala waters. It is therefore likely that,in the coming few years, increases in production will come mostly from eastern coast. Again, the development which is taking place is a spontaneous one, resulting from the initiative of small private entrepreneurs. 17. Another source of supply, which is likely to slightly decrease in the future due to land reclamation, is shrimp fishing in the rice paddies. Pond shrimping and rice-paddy shrimp fishing are well developed in Kerala State, producing around 4,000 tons per year. About 11,000 acres are used for shrimping. Fields adjacent to the sea are the most productive, with an average shrimp yield of 460 kg per acre. Fields connected indirectly to the sea by the ponds are the least productive, 160 kg per acre. Rice paddy fields are filled with brackish water at high tides, the water containing a large number of shrimp eggs and larvae. These thrive in warm water and the rotting vegetation makes for good feeding. Upon reaching commercial size, usually in a few months, the sluice gates are opened and the shrimp netted in fine-meshed nets, as the water filters out. 1 Most of the processing plants have their ot-m fleet (generally a few mechan- ized boats, 32 feet long) which is, however, too small to meet their raw material requirements. They have therefore, also to rely on the catches of the small fishermen. In spite of the advance of mechanization in the last ten years (there are more than 1,200 motor-driven fishing boats operating from Cochin today against two or three in 1958 and the demand for more is ahead of supply), most of the 5,000 boats engaged in fishing at this center are dugout canoes or consist of three logs lashed together with rope, which cannot be mechanized. The rest are sailboats, some of which could take engines. -7- 18. The shrimp belt now commonly fished is between 5 and 15 fathoms deep, but research carried out by the Indo-Norw'egian fisheries development project has revealed large new grounds with seven different varieties, including rich resources of cold water or pink shrimp, which fetches a high price in the world market. But these grounds are beyond the reach of most of the vessels belonging to the Cochin fleet and ocean-going trawlers have, therefore, become an urgent necessity to keep the industry expanding. At present there are only 12 trawlers which operate both in deep waters and offshore. These trawlers belong to New India Fisheries, Ltd., an Indo-Japanese venture started in 1955. This firm in which the Taiyo Fishery Company of Japan has a 49 percent interest, is Cochin based. These trawlers, of Japanese make, can remain at sea up to 20 days at a time. Daily average shrimp catch is three-quarters of a ton but during the monsoon this goes up to two or three tons. 19. In the Fourth Five Year Plan, "it is proposed to introduce 300 fishing trawlers to be operated by private companies, cooperatives and State fisheries corporations. To assist this program, the Indian Development Bank of India has agreed to provide deferred payment facilities for the indigenous trawilers. Assistance will be available from Plan funds by way of subsidy towards the cost of such trawilers so that these are able to compete with imported trawlers" (Page 203, para. 8.h1). Unfortunately, these dispositions do not generally please the prospective buyers for reasons explained hereafter. 20. Mechanized boats are locally produced, but building of trawlers, especially those of 72 feet of length, is a new activity for the Indian shipyards. Therefore, after lengthy discussions with the trade, the govern- ment has agreed to the import of trawlers, provided that for every three trawlers, one at least has to be Indian-made. Price of an imported trawller is about 800,o00 rupees, but no special arrangements are now available to help the financing of imported trawlers and, being generally small entre- preneurs, prospective buyers find difficulties in securing loans from commercial banks, because they cannot offer enough collateral. Moreover, buyers would like to receive subsidies of no less than 25 percent of the price of imported trawlers. If there is no obvious reason why buyers should be subsidized, it is nevertheless true that financing facilities must be provided for the purchase of imported trawlers. 1/ 21. On-the other hand, locally made trawlers-/!are costlier (1 million rupees than the imported one, but government subsidies will equalize the prices of both local and imported. However, despite adequate financing facilities, buyers are reluctant to pass orders to Indian shipyards, being afraid of delivery delays, inadequate plate freezers and, chiefly, of in- efficent engines. Perhaps, most of the buyers' reluctance could be overcome by allowing, at least, imports of engines. The government assisted in the formation of two consortia: Western India Shipbuilders Consortium and Eastern India Shipbuilders Consortium. 22. Quality problems of locally made trawlers and financing problems for the imported boats are not the only ones which stand in the way of the Fourth Plan Program. At present, there is scarcely any skilled labor to operate a trawler and the training of such a labor force is time consuming. With the help of two vessels, a gift from Sweden, and under the supervision of a master fisherman from Iceland, whose services have been obtained from FAO, a training programme has been already underway for the last eighteen months. Nevertheless, at least at the start, most of the skippers and other technicians would have to be hired from abroad to train Indian skippers, mates, engine drivers, gear technicians, marine engineers, shore mechanics, wireless operators, etc. The idea is to "import" the crew along with the boat for at least a one year's training period. Up to now, nothing is known about the financing of such expensive schemes. 23. Another problem is the infrastructural environment. One of the major handicaps is undoubtedly the absence of ports and port facilities, ranging from repair shops and slipways to proper landing jetties, processing facilities and mark:eting arrangements. The need for fisheries harbors, with all their various ancillary services, was recognized at a very early stage of the modernization process in Intia's fisheries. The main problem is the early and efficient implementation of plans. The net results of partly internationally aided 1/ efforts in this field is that up to the end of 1968, eight fisheries harbors had been corpleted, 38 were under construction and an equal number had been selected for pre-investment surveys. It must be pointed out, however, that even for the existing fleet of mainly smal]. mechanized boats, harbor and shore arrangements are still inadequate. Even in the few harbors where engineering work has been completed, repair facilities, supply of water and ice and also plants for handling and processing are either insufficient or dramatically lacking. In some cases where such facilities are available, there is insufficient coordination. 2k. It therefore appears that the current development policies regard- ing the introduction of 300 trawlers are unlikely to materialize during the Fourth Plan period: inadequate financing, lack} of trained manpower and poor infrastructure are not insurmountable problems, but it will take quite a time to overcome them. Existing facilities and work now in progress might nevertheless make possible the operation and the seiricing of a small Cochin or Madras based fleet of trawflers during the Fourth Plan period. For the time being, since an individual buyer must at least order three trawlers (two imported plus one Indian-made) only big Corporations like Union Carbide India, Tata, etc.,... have shown interest in purchasing such trawzlers. The GOI has already granted import licenses for 20 trawlers. Union Carbide India has already launched two U.S.-made trawzlers (86 feet in length). It is there- fore well possible that within the coming two years, 30 big trawlers might be in operation: this could mean an increase in exports of about 25% over the present level. 1/ Norway, Sweden, FAO, etc. -9- IV. EXPORTS 25. Shrimps are by far the leading fishery export for India, accounting for about 24,000 tons in 1969 or 80 percent of total fish exports in value. Total fish exports were value) at U.S. $44 million in 1969, of whicy over U.S. $38 million was shrimp.Y The principal item is frozen shrimp,Jamounting to 21,500 tons in 1969. Shipments to the United States took 71 percent of that total, but only 60 percent on the basis of value. Generally every U.S. importer has an agent in Cochin, whose main task is to assess the reliability of the firm in terms of financial soundness, quality of the end products, etc..., before the importer enters into a business relationship with it, but orders are passed directly by the importer to the processor. Shrimps are sold on a consignment basis and the exporter receives 80% of the value at the time of the shipment..3/ The U.S. market is a very interesting and convenient market since it can absorb all kinds of shrimp, including those of small size. On the contrary, Japan, which is taking an increasingly larger share of exports, purchases mostly jumbo shrimps; as a result India sold on the basis of quantity, 25 percent of her total exports to Japan, but 35 percent in terms of value. For the time being, the industry is not interested in developing new markets for frozen shrimp (except in Australia), because it cannot now fill the orders it gets through its foreign agents in the United States and Japan. 26. The trade in U.S. rates the quality of frozen shrimps from India as good and the quality is found to be improving over the years. Neverthe- less a few Indian firms are still exporting products of uneven quality, which are partly responsible for the lesser price Indian shrimps of comparable category and grade are fetching in the U.S. market compared with say Mexican shrimps. The main reason is, however, that it takes a long time to build a reputa,tion, and this applies also to countries like Thailand, Pakistan, Brazil etc.... There is no apparent reason to believe, as some Indian exporters do, that prices of Indian shrimps are artificially depressed by U.S. importers, which would take advantage of the-fact that exports are made on consignment basis. We, at least, found no evidence of this. See in Annex Table I and Table II. See in Annex Table III. / then for one reason or another, the price at which the U.S. importer sells shrimp falls below 80% of the price at the time of the order, the importer experiences difficulty in obtaining reimbursement of the difference from the exporter: this is at least the contention of one importer in the U.S. We have been told, that it took about 2 years of sustained effort for an outstanding Brazilian firm, processing lobster tails, to see the price offered for its products moving from the 13r,' .ilian average to the Mexican average. - 10 - 27. U. S. importers would like to see exports of shrimps from India undertaken in a more regular and even manner, which implies the building up of inventories during the peak season for sale during the off-season. Under the present circumstance, the arrival of Indian shrimps in huge quantities in the U.S. at certain periods of the year is depressing the whole market. 28. There is also room for improvement in the packaging of Indian shrimps, in terms of quality and attractiveness. However, this problem is rather complex. If for instance, one Indian exporter is spendirg 3 more cents per package, he will not receive one more cent for its product, the price of which will be as quoted in the "green sheet" 1/; it may eventually take two or three years, before the consumers would be ready to pay a premium in addition to the "Indian" price, to get shrimp with this particular package. 29. Canned shrimp (U.S. $3 million) are exported mostly to the U.K., the U.S. and France. Frozen lobster tails (U.S. $1.5 million) are entirely exported to the U.S. Another relatively important export item is frozen froglegs. India started developing this industry about ten years ago and has now become the world's largest producer. A dozen or so of highly modern small plants have been set up around Cochin, Mangalore, Goa and Bombay, which process frogs caught during the previous night with the help of torches in surrounding marshlands. Exports of froglegs amounted over 850 tons in 1969 and were valued at U.S. $1.5 million: major markets are the U.S., France and Belgium. India is also exporting a traditional item: dried fish, to Ceylon valued at from U.S. $1.5 to $2 million a year; following foreign exchange difficulties, Burma, another traditional importer of dried fish, stopped importing in 1962, 2/ 30. The international shrimp market is a seller's market and will remain so in the future, as the catch rate is expected to remain behind the fast growing demand in high-income countries, especially in Japan and Western Europe, whose incomes have reached a level where the income elasti- city of demand is probably the highest.3/ Between 1958 and 1968, consumption in the U.S. nearly doubled: i.e. a yearly increase of about 7 percent. With the present reservoir of unfilled demand especially from medium income groups there is no reason to expect that the rate of consumption increase in the U.S. should slow, dotn. There is also a distinct possibility that consumers 1/ Daily sheet published by the trade reflecting the market trend for shrimps, lobsters, etc..., originating from different countries. 2/ See in Annex Table IV. 3/ Between 1958 and 1968 total world consumption increased by 10 percent, while U.S. consumption increased by only 7 percent per year. In other words, developed countries other than U.S., increased their consumption by 26 percent per year during the past decade. Nevertheless, U.S. con- sumption during the first half of 1970 conpared with the same period in 1969 increased by no less than 15 percent; supply was abundant and prices slightly lower. demand might shift to higher quality products (i.e. large-size shrimps). The U.S. trade thinks that the prices of shrimps will continue to fluctuate sharply in the 'short run, but ir the long run they will continue, as in the past, to show an upward trend)i 31. Between 1958 and 1968,2/world production of crustaceans increased from 150,000 tons to 380,000 tons, i.e. by nearly 10 percent a year; during the same period, exports increased from 66,ooo tons to 118,000 tons, i.e. by 6 percent a year, which implies that prqduction increased faster in consuming countries than in exporting countries.3J In terms of value, exports increased from U.S. $87 to $236 million, an increase of over 10.5° a year: in a decade, the per unit value of crustacean exports increased by 4.3% a year, but most of the increase in prices took place after 1965. Between 1965 and 1968, prices increased by about 8 percent a year, which clearly indicates that demand is accelerating at such a rate, that the imbalance between supply and demand is growing steadily. If we consider, the change in prices in the U.S. market in Indian shrimps, it appears that increase in prices are pro- bably mostly due to the changing preference of consumerstowards high quality products which are scarce. Jumbo shrimp prices increased by 13.3% a year between January 1966 and January 1969; medium-sized shrimps by 10 percent a year; small-sized shrimps recorded scarcely any price increase. 32. In a recent survey conducted by the Indian Institute of Foreign Trade (study commissioned by the USAID), it has been found that export of marine products from India could be stepped up to U.S. $80 million in 1973/74 and U.S. $155 million in 1978/79: however these forecasts are based on the assumption that 330 large vessels would be commissioned in 1973/74 and 68 others in 1978/79, which is more than doubtful. Nevertheless, our expecta- tions are that exports of marine products in 1973/74 might reach a level not too far from IIFT's estimates, but for different reasons. This increase in exporiB will probably take place not because investment programs willproceed as planned in the Fourth Plan, but because of the spontaneous initiative of small entrepreneurs, who will probablv exploit the untapped resources of the eastern coastal waters sooner than expected and also because of the interest snown by Indian and foreign Corporations in exploiting - in a limited way - off-shore and deep sea resources. Y See in Annex Table V. Yearbook of Fishery Statistics (FAO 1968). See in Annex Table VI. - 12 - V. CONCLUSIONS 33. In assessing the remarkable past performance of Indian shrimp exporters, it must not be forgotten that the devaluation of 1966 1/ was a major factor behind this success story. This also partly explains why there is some overinvestment in export-oriented activities. Of course, the main reason is that there is a ready market abroad for shrimps and allied products, while inadequate marketing facilities prevent the supply of fish for local consumption on a large scale. In India, both processing and marketing are chiefly in the hands of private sector, which naturally operates along lines wThich are most profitable. This involves giving preference to marketing of prime species and militates against an extensive supply of animal protein to the lower income groups of the population in the form of lower-priced varieties. 34. If the modernization of the fleet and the building of infrastructure is too lopsided because of their emphasis on shrimp exports, part of the benefits of such investments would be lost. Development of domestic marketing has also a high priority in a country where most of the people suffer from a lack of protein. Broadening the economic base of the fishing industry would moreover mean a substantial increase in income for the fishermen and the creation of millions of jobs. 35. It must, nevertheless, be recognized that the development of the shrimp industry is an easier task, because there is a ready and profitable world market. Development of domestic marketing is a far more difficult task and a particularly time-consuming one; it is therefore obvious that the development of the shrimp industry has not to be slowed down, but conceived in such a way as to become, when times are ripe, a multi-purpose industry, taking care of the export market as well as of the domestic market. 36. In terms of foreign exchange earnings and of generation of income, the fishing industry of India holds great promise; this is probably a field where a concerted approach from the GOI and International Organizations, like the FAD, UNICEF, IBRD, etc. and countries with experience in modern fishing could help promote fisheries development in India. 1/ No export duties were imposed after devaluation, so that the industry improved its rupee earnings by no less than 57 percent. TABLE I GROWTH OF EXPORTS OF INDIA'S MARINE PRODUCTS (1951 - 1961) Year Quantity (Tonnes) Value ('0o0 "s.) 195c;-51 19,651 24,559 1951-52 22,174 32,86; 1952-53 24,841 38,700 1953-54 30,851 44,033 195h-55 28,641 46,675 1955-56 23,972 39,219 1956 (Arril. to December) 18,14o 37,201 1957 22,778 45,861 1958 30,683 58,647 1959 30,990 61,332 1960 16,337 40,216 1961 17,297 41,318 Source: D.G.C.I. & S. (1962 1969) Year Quatntity (Tonnes) Value ('00ci Rs.) 1962 11,619 37,475 1963 17,908 58,646 1964 21,458 68,489 1965 15,458 69,237 1966 19,153 135,246 1967 21,764 199,286 1968 24,810 220,846 1969 30,504 330,731 Source: Customs Daily Lists Compiled by M.P.E.P.C. TABLE II Indiats Export Pattern of Marine Products Q: Quantity in Tonncs V: Valeic in Rs. '000 Items 1962 1963 1964 1965 1966 1967 1968 (969 1. Frozcn Prawns Q: 2238 3967 5870 7028 8784 11173 14397 2 144 V: 10S20 21204 31518 41422 88792 12980S i561' Ir 26294',.5 2. Frozcn Lobstcr Tails Q: 40 53 41 112 8X 128 297 529 V: 226 313 371 1274 1474 2357 6084 11224 3. Froz.cn Froglegs Q: 391 514 332 443 557 786 452 N;54 V: 2299 3192 1650 2694 5576 8817 489 ( I';'iO 4. Frozen Fisli Q: 23 11 3 8 2 2 5 16 V: 49 37 12 30 25 12 50 119 5. Canncd Prawns Q: 970 1231 1074 1148 1523 2200 2 238 1661 V: 6559 7576 6989 9506 18(656 31243 26156 2210) 6. Canncd Fish Q: (144)* - ...(273) . - ....(155)s .. (402)*. ...(147)* .. (23I)* 'V: 2 - 3 - 1 2 1 1 7. Dricd Prawns Q: 3068 2809 3009 1' 702 1163 1540 1411 835 V: 8944 9325 8997 5447 5271 8961 7259 4 ;'() 8. Dricd Fisli Q: 4330 8704 10174 4431 6553 5147 5388 4329 V: 4873 13721 15787 6522 13246 13233 14045 11658 9. Sliark Fins and Fish Maws Q: 350 342 378 244 139 296 331 214 V: 3442 3051 28%2 2032 1340 3709 4690 4551 10. Other Items Q: 209 277 577 341 351 492 ,91 705 V: 261 227 280 310 865 1139 730 1399 All Q: 11619 17908 21458 15457 19153 21764 24810 30584 V: 37475 58646 68489 69237 135246 199286 220846 330731 Negligible. ^ Kilograms. Source: M.P.R.P.C. Cochin, February 1970 TABLE III MAJOR MARKETS FOR INDIAN FROZEN PRAWNS (on the basis of value) Market Share (7) 1962 1963 196a 1965 196h 1967 196F- ly,, Majorr markets: FRG0hEN PRAWINS U.S.A. 90.50 88.87 71.63 79.01 78.20 61.k4 64.?7 60.08 Japan 0.74 2.36 15.81 11.39 13.51 32.07 31.c5 35.0h Australia 6.67 7.87 12.21 9.00 6.60 5.46 3.39 b.31 Others 2.09 0.90 0.35 o.60 1.69 1.03 0.69 0.5'7 All 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 _______ (on the basis of quantity) Market Share (T) 1962 1963 1964 1965 1966 1967 1965 3,969 Ma'or ma:kets: F'R(ZEFN P;iA'. NS U.S.A, 91.82 90.70 76,.28 81.27 80.81i 71.21 73.3( 71.21 Japan 0.41 2.26 13.06 10.4o al.41, 23.19 22.81 2. It Australia 5.01 6.39 10.43 7.82 5.99 4.64 2.90 3.)j6 Others 2.76 o.65 0.2.3 0.51 1.72 o.96 0.87 0.,5 All 100.00 100.00 100.00 100.00 100.00 100.00 100.00 1(0.00 TABLE IV Q: Quantity in Kgs. INDIAtS EXPORTS OF MARINE, PRODUCTS BY REGION V: Valuc in Rs. Exported to 1962 1963 1964 1965 1966 1967 1968 1969 1. Africa Q 2,88,377 2,26,944 2,95,541 1,39,028 90,034 1,83,328 2,98,870 1,92,674 V: 6,57,822 7,50,129 7,68,956 4,89,093 4,13,059 9,82,125 10,29,812 7,75,719 2 * North AMacrica Q: 32,95,886 52,00,491 56,70,553 67,41,715 81,40,347 93,76,081 1,20,69,618 t,68,46,4)5 *V: 1,74,81,838 2,82,70,485 2,93,71,784 4,01,76,764 8,11,98,952 9.77,23,048 12,05,41,463 18,16,13,029 3,,Latin Amiicrica Q:- 930 _ 49 _ _ 3397 1,200 V: - 11,710 - 381 - - 21,709 19,526 4, Other Amcrican Countries Q: 3,430 12.535 19,847 27,933 28,735 34,102 33,629 26,399 V: 27,057 85,678 1,52.908 2,13,250 2,27.999 3,56,307 3,16,829 2,50,129 5.E. C. A. F.E. Q: 74,35,593 1,19.85,712 1,48,92,828 74,19,106 94,23,866 1,00,13,145 1,05,57,561 1,11,65,126 Countxrics V: 1,50,68 899 2,58,91,332 3,42,79,757 2,04,73,537 3,66,87,519 7,23,21,794 7,84,49.358 .2,27,19,836 6.Other Asian & Ocean Countries Q: 1,67,898 1,12,211 1,48j551 1,18,963 66,415 1,24,202 1.16,329 1,91,5s0 V: 3,35,644 3.6i.940 4,32,301 2.34,141 2,19,171 6,25,153 4,01,509 3,65,833 7. East European Countries Q: 3,274 7,876 36,581 5,953 4,841 70,932 47,867 48,109 V: 36,290 94,496 3,98,605 1,37,500 91,072 11,67,579 6,89,260 8,21,393 8. Europcn Conmon Markct (E. C. NI.) Q: 1,91,548 1,70,974 1,61,497 5,65,728 7,85,106 10,38,841 7,59,45! 14 54,549 V: 11,14,952 13,41,892 12,23,465 39,08,398 94,53,731 1,40,30,368 90,36,813 1,49,02,592 9. European Free Trade Area (E. F. T. A.) Countries Q: 2,31,456 1,89.496 2,28,395 4,34,671 6,08,368 8,87,929 9,17,252 6,55,079 V: 27,33,236 18.29,371 18,27,560 34.96,463 68,91,618 1,17,47,73S 1,02,64,370 92,25,200 10. Other European Countries Q: 1,920 930 3,768 4,431 5,678 35,728 6.267 2,789 V: 18,762 9,017 33,413 57,433 63.101 3,31,399 95.114 38,000 Total Q: 1,16,19.382 1,79,08,099 2,14,57,561 1,54,57,577 1,91,53,360 2.17,64,288 2,48,10,242 3,05,83,890 V: 3,74,74,5CO 5,86,46,C50 6,84,88,749 6,92,36,960 13,52.46,222 19.92,85,508 22,08,46,237 33,07,31,257 Source: M.P.E.P.C. Cochin, February 1970 TABLE V Monthly Avrcrage Wholc Salc price For Indian Shrimps in the U. S. Mar1ict (Pcclcd & Dcvcined) Pricc7in IJ. S. Ccnts/lb. (irtd.c Ye.'ir J.111. Fcb Mar. April May Junc July Aug. Sept. Oct. No,v. _ 2 Cz. UnII5 1966 - - - - - - - - - - - 1967 - - - - - - 145 142 - - - 196S 145 150 150 - - - - - - 180 179 _ 1')69 - - - - - - - - - - 16120 1966 115 - 115 115 118 119 124 126 130 130 130 133 1%.07 132 131 133 134 132 135 138 136 140 143 142 1410 196S 141 143 142 145 148 150 150 150 159 164 167 167 19%9 167 165 16S 168 166 168 166 163 162 163 165 165 21/25 1966 107 - 108 114 113 117 119 120 125 125 125 125 1967 127 126 128 129 109 129 130 132 127 133 136 135 19OS 136 13S 139 140 140 140 140 140 144 150 153 155 1909 156 153 158 158 158 160 158 154 153 154 155 155 26/30 1P)66 103 98 103 109 109 114 116 119 120 117 120 120 191% 122 121 123 124 125 125 127 122 126 129 129 128 I1)68 131 131 133 134 134 136 136 137 141 146 148 149 1969 149 149 151 150 147 IDO 149 145 143 143 145 145 31/35 1966 98 93 96 108 106 108 110 113 115 114 115 1is 1967 116 116 116 118 118 120 120 117 118 119 118 118 1968 IS I 118 118 118 118 118 118 117 123 130 130 13i 1969 132 135 136 133 132 i32 132 131 131 131 131 131 3Gj40 19'6 93 90 95 104 102 103 107 108 111 110 110 11;' 10(7 III III 112 112 III 114 1(9 10( 113 113 113 113 1963 113 113 113 114 114 114 114 113 118 122 123 127 1969 126 128 130 128 126 127 124 120 119 119 120 121 41/50 1966 89 87 92 103 99 102 104 lu5 105 106 105 105 1967 105 106 109 109 106 103 100 97 100 101 102 101 1968 102 102 102 101 100 97 .94 91 99 104 106 I0') 19(9 110 113 115 115 112 114 114 113 113 114 115 1 51/60 1966 84 83 S9 99 95 97 99 100 100 100 i( 1967 101 106 104 104 101 99 96 89 93 94 I4 9? 1968 92 94 94 92 89 88 .85 84 90 9,8 59 1 02 1969 103 106 106 106 104 105 105 104 105 1(5 1(5 1O.') -61/70 1966 SO 80 86 94 92 93 94 95 95 97 93 '); 1967 96 96 97 100 93 89 86 82 84 84 84 S. 196S 84 84 85 82 82 76 75 73 80 83 83 86 1969 88 96 97 97 97 98 98 97 98 99 ICO 100 71190 1966 77 77 83 89 88 88 89 88 90 90 88 88 1967 89 89 90 91 86 82 74 68 69 67 67 67 196t8 68 69 68 68 67 67 65 64 70 74 76 19 1969 80 82 83 85 84 85 86 84 86 86 87 88 91-110 1966 72 74 82 86 86 86 86 86 B6 85 - - 1967 - - - 76 68 60 63 co 62 65 1968 .64 64 63 64 62 62 62 61 65 69 70 73 1969 74 78 79 s0 79 80 81 79 80 81 81 83 811-130 1966 69 72 80 84 82 75 - - 80 - - - 1967 - - - - - 69 65 57 56 56 56 57 1968 57 57 56 55 54 54 54 53 59 65 68 70 1969 71 76 76 77 76 77 77 74 77 77 77 78 830/up 1966 68 72 78 81 77 72 68 61 56 57 60 59 1967 59 57 55 53 51 47 44 43 42 40 39 41 1968 44 44 44 44 44 44 46 48 55 62 65 57 1969 68 71 73 74 72 72 69 66 65 63 62 62 Titi: 1969 - 69 69 70 67 65 57 54 54 55 55 S5 Source: 14oPoEoPOCo. Cochin, February 1970 TABLE VI I4AIN SHRIMP PRODUCING COUNTPES (in 000 tolls) 1958 1968 UJ.S.A. (shrimos ) 35.8 61.0 ir.exiCO,( 31.3 3 5. 6 India ( 5 ) 15.3 Japan ( 'f ) 3.1 3.7 Pakistan (CruS.taceans) 0.4 10.8 Thailand ( f " ) 3.6 79.0 Socitrce: Yearbook of Fishery Statistics - 1968. TABLE VII DIPORTS OF SHRIKPS (OF ALL TYPES) INTO U.S.A. (I961-1969;) (In Tonne.s) Imported from: 1961 1962 1963 1964 1965 1966 1967 1968 1969 (1) (;2) (3)- (4) (5) (6.) (7) (8) (9) (1-G) '.*XicO 35,916 35,230 34,706 32.714 27,187 31,169 31,960 27,192 25,511 (62.7) (54.9) (50'.5)1 (46.7) (36.8) (38.5.) (37.8) (31.6) (29.0) =D IA 1,461 2,547' 4,512 4,64L 6,487 7,484 8,362 10.039 15,585 (2.6): (4.°) (6.6.). (6.6) ('8.8) (9.2) (9.9) (11.7) (17.7) BANANA 4,487 4,589 4,653 5,498 4,656 4,415 5,047 4,867 4,5C3 ('7.8), (7.2)' (6.8) (7.8) (6.3) (5.5) (6.0) (5.7) (5.1) GUYANA 1,59O' 1,872 2',499 2,486 3,616 3,983 4,287 3,787 3,699 (2..,8) ('2.9) (3.6) (3.6) (4.9) (4.9) (5.1) (4.4) (4.2) ECLUADOR 2',125 2,323 2,554 2,612 2,376 2,571 2,715 2,8-3 4,037 ('3.7) (3.6) (D.7) (3.7) (3.2) (3.2) (3.2) (3.3) (.L6) VENEZUEIA 1,120 2,876 2,626 3,585 5,769 1,307 2,165 2,451 2,654 (2.0) (4.5) (3.8) (.5.1) (7.8) (1.6) (2.6)' (2.9) (3.0) PAKISTAN 765 1,431 1,673 2,183 2,987 3,716 3,382 2,484 2,1 ', (1-3) (2-.2) ('2.4) (3.1)' ('4. 0) (4.6)~ (4.0) (2.9) (2.8) EL SALVADOR 3,671 3,246 3,025 2,855 2,439 3,154 3,050 2,105 2,280 ('6.4); 51 (4,4)' (4.1). (3.3)- 039) (3.6) (2.h) (2.C6) JAPAN 827 1,779 1,852' 1,311 1,136 1,198 424 627 57T (1.4)1 (2.8) (2.7)' (1.9) (1.5) (1.5) (0.5) (0.7) (0.7) OTHER 5,313 8,238 10,632 12,220 17,277 21,992 23,008 29,531 26,551 COUNTRIES (9.3) (12.8) (15.5) (17'.4) (23.4) (27.1) (27.3) (3 h41) (30.3) Total 57,275' 64,131 68,732 70,115 73,910 80,989 84,400 85,936 87,880 (O.O(100.0) (100.0) t'10o.o) (100.0o) (100.0) (100.0) (100.0) (100.0) (100.o) Note:- figures inside the brackets indicate the percentage share of the column total. Source: U.S. Trade Statistics RESTRICTED Report No. SA - 19a INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVEIDPMENT INTERNATIONAL DEVELOR4ENT ASSOCIATION EXPORTS OF LEATHER AND LEATHER PRODUCTS INDIA May 27, 1971 South Asia Department INDIA EXPORTS OF LEATHER AND LEATHER PRODUCTS TABLE OF CONTENTS Page SJAY .. .......... . . . .......... * i I. INDIAN LIVESTOCK . . . . . . . . . . . . . . . . . . . . . . 1 II. INDIAN PRODUCTION OF HIDES AND SKINS . . . . . . . . . . l III. INDIAN LEATHER AND LEATHER GOODS INDUSTRY . . . . . . . . . . 6 IV WORLD TRADE: PAST PERFORMANCE AND PROSPECTS . . . . . . 8 V. INDIAN EXPORTS: PAST PERFORMANCE . . . . . . . . . . . 10 VI. INDIAN EXPORTS: PROSPECTS. . . . . . . . .. . . . . . . 12 VII. CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . 15 ANNEX Tables I - World Livestock Population per 100 Persons in Selected Countries (196b/65) II - SectorialDistribution in 1961 III - Fixed and Working Capital Employed in the Industry (1962/63) IV - Estimates of Number of Hides and Skins Processed in the Country(1967) V - Exports of Hides, Skins, Leather and Leather Goods VI - Exports of Leather by Commodities VII - Percentage Shares of Selected Countries in India's Exports of Hides, Skins, Leather and Leather Goods: 1957/58 1968/69 VIII - Estimated Production of Hides and Skins IX - Utilization of Ilides and Skins in 1963/69 and the Possible Utilization in 1973/74 .This report is based on the findings of a mission which visited India and European cities in June/July, 1970, composed of Messrs. Christian Ladonne and Alberto de Capitani. - 1 - EXPORTS OF IEATHER AND LEATHER PRODUCTS S3MVARY 1. Contrary to what is often believed, the ratio of cattle (bovine) population to human population in'India is much smaller than in many other countries; moreover the economic basis of India's present cattle population is extremely weak. For the goat and sheep population this ratio is well below the world average. On the whole, compared with the main countries, developed or developing alike, which export leather, India has inadequate resources of livestock. Nevertheless, India is an important exporter of leather, because, being a poor country, the domestic consumption of leather footwear is very low. 2. Over 800,000 persons are employed in the leather industry, mostly in the household sector. There are not more than 50 partly mechanized tanneries in the large scale sector. In 1967, the industry processed about 69 million hides and skins valued at about Rs. 1.h billion. Production of leather footwear is estimated to be around 180 million pairs, valued at about Rs. 1.4 billion ($186 million). 3. Since 1957, exports have more than doubled and amounted to $132 million in 1969/70; however, most of the increase took place after the 1966 devaluation. World demand prospects are good especially for goat and sheep skins, for which demand is likely to be buoyant during the decade. However, due to the limited supply of raw hides and skins, the industry will,after a few years,-experience difficulty in meeting the growing requirements of both the export and home markets. Therefore, the quantum of export is unlikely to grow very much during the second half of the decade; however, by switching gradually from export of tanned but unfinished hides and skins to the export of finished leather and'leather goods, India will most likely be in a position to maximize'her export earnings. EXPORTS OF LEATHER AND LEATHER PRODUCTS I. INDIAN LIVETOCK 1. Contrary to what is often believed, Indian resources of livestock are basically not adequate to provide a continuous exportable surplus of leather and leather goods. If India is at all on the map of international trade in hides and skins, leather and leather goods, it is because being a poor country, the domestic consumption of leather and leather goods, especially footwear, is small. 2. In 1964-65 the world livestock population!/ per 100 persons amounted to 31 heads of cattle, 4 heads of buffaloes, 31 heads of sheep, 11 heads of goats and 17 heads of pigs. The livestock population of India per 100 persons is above the average in respect of cattle (39), buffaloes (11), and goats (l); the population of sheep (9) and pigs (1) are however much below the world average. It must be pointed out, that major exporting countries have very large livestock population of certain speciesE/, which give these countries a real basic exportable surplus while other countries like centrally planned countries and Japan have a low livestock population, which depresses the world average. Moreover, the management of the cattle and buffalo population in India is so poor, that for roughly the same per capita availability of cattle, per capita availability of hides and skins is about 3.5 times less in India than in developed countries. 3. Cattle According to the livestock censuses in 1956, 1961 and 1966_%/, the cattle population did not grow at all during the quinquennium 1961-1966, after having increased by over 10 percent during the previous quinquennium. 1/ Source: F.A.O. Production Year Book (1966) 2/ See Table I in Annex. 3/ Data regarding the number of livestock are collected through a Census conducted quinquennially. Primary data are collected through tax revenue agencies where they exist, or through other staff, then forwarded to Departments of Agriculture in the different States and finally consolidated returns are furnished to the Directorate of Economics and Statistics, Ministry of Food and Agriculture. These data must not be taken at their face value but, hopefully, represent a corrent "guesstimate" of the trend. -2 - Year Youngstock Adult Stock (in Million) (0-3 Years) Male Female Total 1956 158.7 1961 48.9 72.5 54.2 175.6 1966 47.9 73.0 5h.6 175.5 The stagnation of Indian cattle population, the declining young stock and the much smaller female adult stock in comparison with the male adults are three features which have appeared without practically any rationally organized slaughter. Officially, less than 3.5 percent of the deaths of cattle in India are due to slaughter, but we have the strongest suspicion that the real rate of slaughter is considerably higher; the remaining deaths are due to so-called "natural" causes which are much influenced by the economics of feeding unpro- ductive stock. 4. Improvement of roads and expansion of motor transport are displacing the bullock in the sphere of transport. The introduction of diesel engines and recently the extension of electric power to rural areas and consequent introduction of electric motors are even more rapidly substituting mechanical power for bullock power for the purpose of irrigation, oil-crushing, cane-crush- ing, etc.. Cultivation i8 still done predominantly with bullock power, but tractors are already beginning to appear. Hence, it seems that the predomi- nance of bullocks in Indian agriculture will gradually diminish. 5. In India, cows are maintained primarily for breeding bullocks-/. Whether the number of cows is too high for breeding an even population of bullock, and therefore the excess youngstock is neglected and allowed to starve, or whether, due to the high mortality rate among the youngstock, this number of cows is justified, is debatable: obviously, this is a chicken and egg problem. Annual survival rate for the youngstock is approximately 70 percent, which means that 35 out of 100 newly born calves will survive the third year and reach adulthood; there is no evidence that the mortality among young females is higher than among young males. This may appear strange asthe male adult population out numbers the female adult population by about 40 percent. Many partial exp!anations can probably be given: the expected higher mortality among cows, the fact that many underfed cows might become barren and also a 1/ Milk yield per lactation period is at tlle most 400 kg. Moreover, cow milk is less appreciated than buffalo milk, because of its lower fat content. - 3 - micro-economic factor. There is, indeed some economic logic for a small farmer, who wants to breed a new pair of bulloc1e to maintain, a cow for this purpose for 3 or 4 years and thereafter leave it to its own devices to find food for itself, decreasing therefore its chance of survival. 6. Whatever the real logic of cattle breeding in India is, one fact remains: if through proper feeding, mortality of calves were reduced from the present 30 percent per annum to say 10 percent, out of 100 newly born calves, 73 percent would reach adulthood. This means that in order to breed the same number of adult stock, only half the number of calves would need to be born and the number of cows might be reduced to half their present number. 7. Buffaloes Like the cattle population, the buffalo population too has remained more or less stagnant. Youngstock Adult Stock Year (0-3 Years) Male Female Total 1956 - - 1961 18.5 7.7 25.0 51.2 1966 18.5 8.2 26.1 52.8 The imbalance between the two sexes is much greater than in the case of cattle and it goes in the opposite direction. This is because buffaloes are bred and maintained primarily for milk (950 kgs. per year of milk per she-buffalo per lactc tion) and it is only rarely that the he-buffalo is used for draught in agricul- ture and in transport. As it is uneconomic to feed and not possible to slaughter!/, there is no alternative but to allow the youngstock to starve to death. Mortality among the youngstock of ages 0-2 is as high as 57 percent per annum among the male and 36.5 percent among the female stock. The economic logic is obvious. On the other hand, the mortality for adult stock is only 8.5 percent per annum. As a consequence, 13.2 million buffaloes die every year, out of which 80 percent are youngstock. 1/ According to official estimates, less than 3.5 percent of the deaths of buffaloes are due to slaughter. Again, we are under the impression, that this is a gross underestimate. At any rate, social and religious inhibitions against buffalo slaughter are certainly less strong than in the case of cattle slaughter. -L4- 8. Sheen and Goats: The following table gives the sheep and goat population, according to the last three censuses: (in Million) Year Sheep Goats 1956 39.3 55.4 1961 40.2 60.9 1966 42.0 6h.5 For the last ten years, the sheep and goat population has been on the increase. As both, sheep and goats, are bred and maintained mainly for meat and as there is no inhibition against their slaughter, most of the deaths, almost 95 percent, are due to economic slaughter. The slaughter rates are comparable with those in other countries: 50 percent for sheep and 60 percent for goats. However, the slaughter houses-are extremely primitive and most of the by-productsl/ of the slaughter house, except the skins, are wasted. II. INDIAN PRODUCTION OF HIDES AND SKINS2/ 9. Official estimates of production of hides and skins in 1961 have been the following: FaIlen Population hides/skins Slaughtered Total in 1961 recovered hides/skins Hides/skins Cattle 175.64 16.51 0.88 17.39 Buffaloes 51.22 5.17 o.46 5.63 Sheep 40.23 1.30 17.69 18.99 Goats 60.90 2.57 26.30 28.87 This table implies that 90 to 95 percent of sheep and goat skins from f'allen and slaughtered animals are recovered. The situation in respect of cattle and buffaloes is quite different. Estimated mortality rates suggest that only 65 percent of fallen hides of cattle are recovered; in the case of buffaloes ./ Goat hair; animal casings; bones, horns and hoofs; glue and gelatin: animal fats; pharmaceuticals of animal origin. 2/ Generally speaking, "hides" come from adult cattle and buffaloes, while l"skins" come from smaller animals like calves and buff-calves, goats, sheep, snakes, lizards, crocodiles, etc. - 5 - the rate is still lower: lh0.5 percent. Field inquiriesV/ in 13 districts of eight different States indicated that the rates of recovery of fallen hides and skins have been found as follows: bullocks 63 percent, cows 56, calves 32, he-buffaloes 71 percent, she-buffaloes 80 percent, buff-calves 69 percent. This shows that the rates of recovery of cattle hides might be less than gener- ally assumed, while in case of buffalo hides it might be the other way around. Admittedly, these'results are based on too limited an enquiry to be accepted; but they show nevertheless that the assumed economics (evv the numbers) of livestock in India are based on probably unreliable data.- 10. This low rate of recovery of hides from fallen animals is due to the fact that naturally dead cattle fall in widely dispersed places. Consequently, the expeditious transport of the carcass to the flaying center becomes physi- cally difficult and entails considerable financial cost. Moreover, only certain castes are entitled and willing to look after fallen animals, and therefore, for various reasons a number of carcasses remain unattended. Only the Khadi and Village Commission has paid somie attention to all these problems by setting up a number of carcass recovery and flaying centers. 11. While hides and skins recovered from slaughter-houses are on an average of a rather good quality, hides recovered from fallen animals suffer from numerous physical defects, which greatly affect the quality of the hides, and therefore the prices offered from them. However, according to some manu- facturers in Kanpur,2/ the ratio of hides recovered from fallen animals compared with those from slaughtered animals is very different from the aggregate one we mentioned earlier. For the Kanpur trade, 80 percent of the hides it receives comes from slaughtered animals, against scarcely 6 percent for the official all-Indian figures. Good quality hides fetch up to 25 rupees for a hide recovered from. a fallen animal and this constitutes a strong economic incentive for slaughtering animals. Moreover, there are important beef consuming minorities in the Kanpur area. Of course, what applies to Kanpur areas does no necessarily, far from it, apply to other areas, Nevertheless, and as stated earlier, we are under the impression that the official rate of cattle and buffalo slaughtering is an underestimate, because it does not take into a6count clandestine slaughter of healthy animals for meat, and secondly, for hides, and of dying animals for hides. 1/ Organized by the Gokhale Institute of Politics and Economics, Poona; Central Leather Research Institute, Madras; and Agro-Economic Research Centers (1969). 2/ These unreliable data have led the FAO to refrain from making any forecast of production for the LDC's in the "Agricultural Commodities - Projections for 1975 and 1985.11 3/ Kanpur, located in Uttar Pradesh, is the main processing center of hides and skins in North India - U.P. accounted in 1961, for respectively 15 percent and 21 percent of the total Indian population of cattle and buffaloes. - 6 - III. INDIAN LEATHER INDUSTRY AND LEATHER-GOODS INDUSTRY 12. Roughly speaking, hides and skins recovered from animals are first either salted or, to lesser extent, dried: at this stage, they are in the "raw" or "undressed" form.- They are then put in an acid bath for preserving and cleaning; the "pickled" skins are thereafter tanned through a vegetable tanning process and another full tannage will be required to produce "finished leather". There is also a mineral tanning process, which is becoming more and more widespread: to be converted into finished leather, "chrome-tanned" hides and skins require a much less intensive final tannage. At present, most of the Indian exports are vegetable-tanned and, to a lesser extent, chrome- tanned hides and skins. 13. It is extremely difficult to estimate the value added to raw hides and skins through the processing of tanned materials and of finished leather goods. We have no specific information relating to the differential value added between vegetable and chrome-tanned hides and skins; nor have we informa- tion on the value added in the production of finished leather, because there is scarcely any production of goat and sheep finished leather and the production of cattle and buffalo finished leather is mostly made in the footwear industry, where it cannot be isolated as an output. However, from the Annual Survey of Industries (1962/63) some rough "guesstimates" relating to the value added (output-leather input ratio) can be drawn: (Index of Value) Hides and skins, undressed: 100 Tanned hides and skins, (mostly vegetable tanning) 150 Footwears and other finished leather goods (cattle leather) 200 There is no doubt that this index of value would be much higher in the case of chrome-tanned hides and skins and in the case of goat and sheep finished leather. 14. The leather industry of India, which has centuries-old tradition, is still largely based on a process of light bark tanning known as "East Indian (E.I.) tannage", and carried out in about 500 small and medium scale tanneries. Mechanized large-scale tanneries producing vegetable-tamed leather numbered 32 in 1966, while mechanized large-scale tanneries producing chrome-tanned leather numbered only 12. In addition, some 250 small and medium scale tanneries currently use the chrome tanning process. (See in Annex, Table II, "Sectorial distribution in 1961" and Table III, "Fixed and working capital employed in the Industry"). 1/ Vegetable-tanned leather represented in 1968/69 two-thirds of total produc- tion, while chrome-tanned leatherrrepresented the remaining one third. -7- 15. Nearly half of the fixed capital consists of plant and machinery. Another 10 percent consists of tools, transport equipment and other fixed assets. The remaining 40 percent of the fixed capital consists of land and building. Roughly speaking one-third 6f the large and medium scale factory sector is mechanized, but at the present level of capacity, full mechanization of the industry would require machinery worth about Rs. 30 million. Such a comparatively small amount does not probably justify an import substitution policy for the manufacture of most of the machines needed by the tanning and leather finishing industry in the country. At present, capacity utilization1/ of the industry appears to be low: at least 30 percent of its capacity for vegetable - tanning and 40 percent of its capacity for chrome - tanning of hides is underutilized. 16. The industry is mostly concentratedY/ in Uttar Pradesh (45 percent of total employment), in Tamil Nadu (31.5 percent) and to a lesser extent in Bengal (7.1 percent). Its output increased by about 4 percent a year between 1960 (index = 100) and 1966 (index = 120.9), but if we are to believe the Annual Survey of Industry (1964), this increase took place mostly in the Census Sector (i.e. large scale factories), the output of which increased in 196!, by 66 percent over 1961. This increase is largely accounted for by the increase in goat skins processed from less than 5 million in 1961 tQ over 10 million in 1964 and in buffalo hides from 1.1 million to 1.6 million. As the supply of ra Z hides and skins has increased only marginally since 1964, the number of hides and skins processed has probably not much changed since then. It is estimated (see Table IV in Annex) that in 1967 the number of hides and skins processed in India was about 69 million: 20 million goat skins, 23 million sheep skins, 25 million cattle and buffalo hides and skins and 1 million of reptile skins and other skins. Value of raw hides and skins processed in India was estimated to be Rs. 639 million 1962/63 and Rs. 618 million in 1967 at 1962/63 prices. On this basis3/ production of semi-tanned, tanned and finished leather in 1967 may be estimated to be Rs. 1.4 million at 1967 prices. 17. Out of the total of about 810,000 persons employed in the leather and leather goods industry, about 78 percent (631,000 persons) are employed in the footwear industry. The footwear industry being predominantly in the household sector, 73.72 percent of the employWment is in this sector, while 25.81 percent is in tWe small scale factory sector and only 0.47 percent in the other two sectors. Therefore, next to nothing is known about the capital structure of the industry except in the large and medium scale sector. Apparently, there is no under-ut;lization of capacity in these two sector-: in 1963, installed capacity -/ for western type footwear was about 8.5 million pairs per annum and the production 8.3 million pairs.5/ Apparently, no additional capacity 1/ In tanneries, installed capacity is calculated on a partial three shifts basis. 2/ Source: Statistical abstract of the Indian Union C.S.O. (1966) 3/ See paragraph 13. I/ In the footwear industry, installed capacity is calculated, as in other countries, on a one shift basis. 5/ Sources: Monthly Statistics of production. has been built since then, but nevertheless the production reached 10.5 million pairs in 1967. In fact, factories have found it more economical to supply leather to independent workers and to buy the ready footwear from them which they sold under their trade mark. 18. In 19614 production in the large and medium scale sector was 7.8 million pairs of western type and 6,0 million pairs of indigenous type. In 1967 the reported production was 10.5 million and 7.3 million respectively. Very lengthy calculations led the Gokhale Institute, Poona, to believe that the total output of the footwear industry in 1967/68 should be estimated at 181.6 million pairs valued at about Rs. 1.4 billion. Output of other leather manufactures amounted to around Rs. 110.0 million. IV. WORLD TRADE: PAST PERFORMANCES AND PROSPECTS. 19. World production of hides and skins. For the past ten years, world production of hides has probably been rising by about 25 percent i.e. less than 2.5 percent a year.1/ Developed countries as a whole are estimated to have expanded their output by about the same amount. The U.S. with an annual output of almost 35 million cattle hides is the world's largest producer. Other principal producers in developed countries are Australia, F.R. of Germany, France and U.K. with about 5 million hides per annum each. In the U.S.S.R there was an estimated (1966) output of about 23 million hides (including calf skins) which is about one-third more than that in 1956. Although develop- in, countries have 60 percent of the world cattle population they account for only 140 percent of total output of hides. This is due to the lower slaugh- ter rates and low rates of recovery of fallen hides. Nevertheless, India with 24 million hides a year is the world's second largest producer. Argentina (12 million), Brazil (8 million) and Pakistan (7 million) are other important producers. 20. World production of calf-skins is decreasing rapidly due to a growing proference for beef in all the main producing countries. Sheep-skins are mainly produced by wool growing countries, Australia and New Zealand accounting for about half of the output of developed countries. Spain and U.K. are other important producers. In LDC's as a whole, goat slaughtering has been on the increase. All the main goat skin producing regions of the Far East, specially India and mainland China, Africa and Latin America increased their production during the past decade. 21. World imports and exports. World exports increased at an annual rate of 11.7 percent between 1957 and 1966, which implies that India lost a substantial part of her market share: 1957 1965/66 1966 World Exports2/ 100 271 Indian Exports32/ 100 138 1/ Source: FAO Commodity review and outlook. 1968-1969. 2/ Source: Commodity Trade Statistics (U.N.) 1957-66. 3/ Source: Indian Foreign Trade Statistics. - 9 - In 1957, India's share in the world market was 8.9 percent and this dropped to 4.5 percent in 1966. We have no accurate figures for the world export in 1969, but it is probable that India had regained some of her share in the world market or, at least, no further decline took place. 22. O.E.C.D. countries account for 95 percent of the world imports of hides, skins, leather and leather goods and for over 80 percent of the world exports. Even in respect of hides and skins undressed, except for India and Brazil, the developed countries are the important exporters and they buy almost the whole of world imports. In respect of leather, except for India, which was the largest exporter in 1957, 1959 and 1960, and the second and third in the remaining years, the developed countries are the important exporters. Again, they buy almost the entire world imports of leather. In respect of footwear and leather manufactures, the world trade is largely confined to the developed countries. 23. World demand prospects. In the past, world trade in raw hides and skins has increased by some 4 percent annually. International trade in leather rose by almost 10 percent per year, due to expanding demand for special types of light leathers for fashion shoes and leather goods in U.S.A., Federal Republic of Germany and EFTA countries, and for garment leather in Federal Republic of Germany, and to the growing practice of exporting hides and skins from developing countries in a processed rather than in the raw state. World trade in leather footwear grew at an estimated 40 percent per year. Spain, France and above all, Italy, exporting increasing quantities of fashion shoes to the U.S. and EFTA countries. 24. Demand prospects are hard to estimate, because it is extremely difficult to assess the future impact of synthetic substitutes (new poromerics) on the markets for leather. However, the FAQ- worked out a tentative assess- ment of the likely consumption in high income count es, based on different assumptions regarding the impact of new poromerics._ (in 000 tons) l965-67 l975 l985 Cattlehides and calfskins 2,600 2,848 to 3,08h 3,181 to 3,4h4 Sheep and Goat skins 340 375 to 435 420 to 486 1/ "The world hides, skins, leather and footwear economy (May 1970)." 2 At present, shoes with poromerics upper can rarely be distinguished from shoes with leather uppers, but they are considered as being less comfortable in wear. - 10 - 25. The FAO assessment of supply prospects in high-income countries is based chiefly an existing projections cC meat production and runs As follows: (in 000 tons) 1965-67 1975 1985 Cattlehides and calfskins 2,312 2,201 3,277 Sheep and Goat skins 239 288 317 26. These tentative estimates of prospective demand and supply indicate- that by 1975 demand for cattlehides and calfskins in high-income countries may exceed production by about 150,000 to 385,000 tons annually. By 1985, this excess may still amount to some 175,000 tons provided demand increases sufficiently to reach the upper limit of the prospective range; should demand fail to rise beyond the lower limit of this range, it could fall short of supply by approximately 95,000 tons. While the U.S.S.R. and eastern Europe will probably remain substantial net importers, other developed countries, whose aggregate consumption currently matches production, are likely to become considerable net exporters. High income countries are thus likely to develop sizeable net import requirements of cattlehides and calfskins during the next few years. These may be met by exports from developing countries probably in the form of rough tanned leather. However, after 1975, net imports will contract, and long term prospects for exports from LDC's are therefore much less favorable. 27. In the case of sheep and oat skins, consumption in high-income countries is likely to exceea production through the 70's and 80's: the excess could range from 88,000 to 148,000 tons in 1975, and from 103,000 to 169,000 tons in 1985. The outlook appears therefore very promising for exports from developing countries, especially for goat skins, Prospects for goat skins export from IDC's will also largely depend on future production and consumption trend in China (Mainland), which was a major exporter during the 50's and the 60's. 28. In view of the fact that no assessment could be made of demand and supply prospects in developing regions, it is virtually impossible to indicate whether prospective market trends point to a wcrld shortag-. or a world surplus of hides and skins. It is therefore difficult to assess a probable price trend. Moreover, a world surplus might limit further inroads of synthetic materials; a world shortage would no doubt facilitate the lasting penetration of synthetic maiterials. V. INDIAN EXPORTS: PAST PERFORMANCE. 29. Indiar export of hides, skins, leather and leather goods have been the following:V 1/ See also Table V in Annex. Expo±ts Index (i-n t Million) Earning in $ 1957 66 100 1959 89 136 1965/66 92 138 1966/67 .117 176 1967/68 93 11 1968/69 116 175 1969/70 132 199 Souree: Mlonthly Statistics of Foreign Trade in India. The 1969/70 figure does not include certain small items. The year before devaluationY/ (1965/66), exports reached about the same level as in 1959, six years before; after devaluation, exports picked up sharply and continue to do so, except for a set back in 1967/68, so that in 1969/70 rupee and dollar earnings were respectively 3 and 2 times higher than in 1957. There is no doubt, that devaluation provided a strong incentive to exporters. 30. Except for goat skins, part of which is exported undressed./ (Rs. 8h.4 million in 1969/70) and for exotic skins, there is a practical embargo on the exports of all raw hides and skins. Therefore, most exports are in the form of leather (semi-processed hides and skins, finiql)ed leather and leather goods). Compared with 1957, the value of leather exports/ in 1968/69 was 2.76 times as large, and this was achieved by multiplying the quantum of exports 1.50 times and exports prices reaching, on an average, 1.84 times their level in 1957. If we nowJ compare the export performance in 1968/69 with the predevaluation year(1965/66),-the index increased two times in terms of rupee value, but by only about 27 percent in terms of dollar value. It so appears, that three years after the devaluation, India could earn 27 percent more foreign exchange from leather by exporting 34 percent larger quantity but at dollar prices 5.5 percent below their predevaluation level. Commodity wise the situation has been the following in 1968/69: (1965/66 - 100) Index of Index of Index the $ prices Category U.S. $ earnings of Quantity of Exports Goat skins 129.84 1411.0 92.02 Sheep skins 129.01 129.61 99.54 Cattle and buffalo hides 141.92 135.30 104.89 Finished leathers 51.54 48.40 106.49 Leather goods 111.86 -140.h4 79.65 Exotic skins 129.59 177.76 110.05 Total 126.82 13h.12 94.56 1/ The rupee was devalued on 6th June 1966 from U.S. $=Rs. 4.76 to U.S. $=Rs. 7.50 2/ Goat skins in the raw are exported on a quota basis. The exports quota was 35 percent of total production in 1967 and 20 percent in 1969. It is proposed progressively, but eventually, completely to ban the export of ra'>- goat skins in a few years time. 3/ See Table VI in Annex. - 12 - 31. U.K., U.S.S.R., Italy, France, U.S.A., West Germany and Japan&/ are the major importing countries of India's leather and leather goods. They accounted for over 80 percent of India's exports in all the year from 1957 to 1968/69. Thus the major importers have been and continue to be the lead- ing developed countries in the world. VI. INDIAN EXPORTS: PROSPECTS 32. Much of the future performance of Indian exports of leather will depend to a large extent on the availability of raw hides and skins. Two sets of estimates of livestock population in 1973-74 and 1978-79 have been respectively worked out by the Development Council for Leather and Leather Goods Industries and the Gokhale Institute. However, we shall only consider the Gokhale Institute's estimates, which appear to be more likely to materialize. (in Million) d Rate of Growth Assessment Estimated Population Per Annum 1968/69 1973/74 1978/79 Cattle Nil 175.5 175.5 175.5 Buffaloes 0.6 53.5 55.1 56.8 Goats 1.2 66.1 70.1 74.5 Sheep 0.9 42.7 44.7 46.8 33. In future, increased supply of hides will not come from an extension of the cattle and buffalo population but by improving the ratio of recovered hides to population. To achieve this, it would be necessary to set up a large number of carcass recovery centers in rural areas. Expanding slaughterhouse facilities in the country and modernizing the existing ones could be helpful, but it must be born in mind that many States have laws prpohibiting cow slaughter. However, growing home and external demand might push up the prices of raw hides and as a result improve somewhat the rate of collection. At present the ratio of cattle hides to cattle population is about 10 percent: it is probably feasible to increase this ratio to 12 percent in 1973/74 and to 15 percent in 1978/79. Similarly the ratio of buffalo hides, which is at present 17.0 percent, might increase to 18 percent in 1973/74 and to 20 percent in 1978/79. 1/ See Table VII in Annex. -13 - 34. As regard prices, mention must be made of the present export-import policy. To encourage processing in the country, export of raw hides has been banned; on the other hand, imports of raw hides are unrestricted. Such a policy might appear to be appropriate under the present circumstances, but would probably have to be progressively modified, because it keeps the internal prices of hides permanently depressed and would thus defeat any efforts towards better collection of the hides and improvement in their quality. 35. Due to possible better management of the stock, the ratio of goat skins to goat population might improve slightly: 55 percent in 1968/69, 57.5 percent in 1973/7)L and 60 percent in 1978/79, and therefore reach the world average. For sheep, the p resent ratio of 48 percent might marginally increase to 50 percent in 1978/79.I 36. India has well established markets for her exports of tanned but unfinished hides and skins. Hence, given supplies, there should be little difficulty in being able to maintain and somewhat expand the present exports. If we assume that the ratio between exports and production will remain the same in 1973/74 as in 1968/69 exports could be the following: (in million rs.) (1968/69 prices) 1968/69 d increase Item (actual) 1973/7h 1973/74-1968/69 Raw skins 439971 _ Vegetable - tanned hides and skins 495,063 541l,0O 9.30 Chrome - tanned hides and skins 179,296 277,098 54.55 Total 718,330 818,198 13.90 37. One individual item, which has extremely good prospects for export is wet blue goat skins, the export of which increased from Rs. 123 million in 1967/68, to Rs. 169 million in 1968/69 and Rs. 240 million in 1969/70, mainly to the U.S.S.R. Nevertheless it is clear that on the whole, India's production of hides and skins cannot sustain any greater exports. Hereafter, India can only increase her export earnings by switching from export of tanned but unfinished hides and skins to the export of finished leather, footwear and other leather goods. 1/ See in Annex Table VIII. "Estinated production of Hides and Skin3 in 1973/74 and 1978/79." - 14 - 38. India's present exports of finished leather are small. In recent years, exports of finished leather of cattle and buffalo hides and calf skins have declined and the reason appears to be India's limited supplies, which are almost entirely used for internal consumption. 1/ On the other hand, India has large supplies of goat and sheep skins and, at present, they are being exported mostly unfinished: it should be therefore possible to export more finished leather of goat and sheep skins. Moreover, tanning is a distasteful and dirty job, and developed countries find it increasingly difficult to recruit manpower and are inclined, whenever possible, to rely on supplies of goods at a more advanced stage of processing from LDC's. However, the market for India's finished leather is as yet quite uncertain. Nevertheless, over the years, India has been able to.develop her technical expertise and she is now in a position to produce goods quite competitive in terms of quality with equivalent goods processed in industrialized countries. Moreover, in terms of price, her lower labor costs will provide her with a definite advantage over her competitors. Goat and sheep skins being mostly used for upper shoes, gloves and garments, end-uses very sensitive to fashion, India must probably take two steps if she wlants to be successful in exporting skins in finished form. Firstly, shipment of goods must be made by air, because the goods must reach the processor in developed countries before the fashion is over, and secondly, imports of dyeing materials must be allowied wiithout restriction, at least at the beginning. For instance, in brown skins there are no less than 43 shades and taste in colors changes extremely rapidly, so that at the start, it wqould be difficult for India to manufacture in time and in sufficient quantities her owin dyeing materials for exporting finished skins. In terms of foreign exchange, subsidies for air freight and free import of tanning materials would prove to be positive: compared with semi-finished skins, finished skins fetch a price at least 60 percent higher. It seems that India could rather easily increase her exports of finished skins from their present level of Rs. 16 million to Rs. 50 million. 39. As shown. in-Annex (Table IX) the footwear and other leather goods manufacturing industry in India will have only 10 percent more leather in 1973/74 than in 1968/69, which wrill allow the industry to grow at no more than 2 percent per year. With the increase of population, increase in per capita income, and increasing urbanization, it seems reasonable to assume that domestic consumption of footwear will increase by at least 10 percent in the next five years: this is probably an underestimate, but it must be borne in mind that India is producing in increasing quantities polyvinyl shoes. Nevertheless, it seems possible to increase production of leather footwear from the present level of Rs. 70 to 80 million a year to over 100 million. 40. Given the world demand and the good competitive position of Indian manufacturers, prospects for export of other leather goods, mainly saddlery and uppers and legs of footwear, appear good. Present export is about Rs. 6 million; exports worth Rs. 20 million in 1973/74 is a feasible target. 1/ It is also possible that the world demand has been sluggish, due to growing competition of synthetic materials for shoe-soles. - 15 - 41. There is also a good market for exotic skins, but the supply of these is uncertain as it is as yet not properly organized. Moreover, indiscriminate slaughter of.crocodiles and other reptiles threaten certain species with extinction.- Exports of crocodile skins had to be completely banned a few years ago to preserve the species. Establishment of farms for raising snakes, lizards, crocodiles and fur-bearing animals would be required, in order to take advantage of world market opportunities. 42. India's exports of leather and leather goods amounted to Rs. 870 million in 1968/69. The Gokhale Institute esti,nated feasible a 1I percent annual export growth up to 1973/74, i.e. Rs. 1050 million (U.S. $1140 million). On the other hand, the Leather Development Council suggested that a 7 percent increase is possible, i.e. Rs. 150 million (U.S. $,153 million). Taking into account, that in 1969/70 exports have already crossed the one billion mark (U.S. $133 million), the latter target is probably within reach. If some bottle- necks were to develop on the supply side of raw hides and skins, more reliance on imports to sgtisfy both home and external demand might temporarily relieve the shortage. Given the percent underutilization of industrial capacities, just marginal additional investments appear to be needed. VII. CONCLUSIONS 43. The remarkable performance of Indian exporters since the devaluation is by no means an accident. It shows that given proper financial incentives,2/ exporters are responding quickly; as a matter of fact, during tile four years after devaluation i.e. up to 1969/70 exports increased by no less than 45 percent in terms of dollar. 414. Government policy towards the leather industry has been a flexible one. Exporters and manufacturers never complained seriously about eventual difficulties in getting their imported inputs, like tanning materials and raw hides. However, it appears that some delays, but ijot unduly long, occurred in the procurement of some imported machinery. 45. Short-term prospects for exports appear fairly good. In the longer run, however, industry will probably experience difficulties on the supply side to be able to satisfy both a growing demand at home and abroad. Neverthe- less India can maximize her export earnings, with the same quantum of exports, by selling goods at a more advanced stage of processing and we think that this switch is now well under way. 1/ According to Reuter (August 17, 1970), "the World Wildlife Fund has given a grant to India to help set up a snake park to preservW; species threatened by slaughter for clothes. The park in Tamil Nadu will include a reptile research center." 2/ Following devaluation, export duties on hides and skins and leather tanned and untanned all sorts were fixed at 10 percent. There are no export duties on finished leather and leather goods. - 16 - 46. Indian livestock economy is an economy of wastage. However, the problems are of such a magnitude that no solution can be expected overnight and the difficulties encountered by the government in tackling the problem have to be fully appreciated. With her limited resources, India has to concentrate on actions which will provide the highest return. Long-term world demand prospects show that goat and sheep skins will probably have very good potential markets. What is needed is, therefore, the building of modern slaughterhouses or the improvement of the existing ones, in order to make possible the recovery of skins of better quality and also of other very valuable by-products, with good markets abroad or in the country, which are presently allowed to go nearly completely wasted. 47. In the case of cattle and buffalo, apart from other considerations, building of slaughterhouses would not make much economic sense, except in beef-consuming areas. What is badly needed is to improve the collection rate of hides: the setting up of a large number of carcass recovery centers in rural areas might be part of the answer. However, before implementing such schemes, careful studies would have to be made to find out whether such investments would prove economical. Perhaps it could well be more efficient and much less costly if some subsidies were granted to the collectors; these subsidies should be arranged in such a way as to encourage the quick pro- cessing of fallen animals and therefore the collection of hides of better quality. 48. Ways and means of improving the management of India livestock are well beyond the scope of the present report. But it is worth mentioning that if Indian cattle and buffalo population were rationally managed, India could become an important importer of cattle hides. However, such a prospect is very remote. As it is, export of leather will probably continue to grow in the next few years, but might level off at the end of the present decade in terms of volume due to the competition of the home market. Earnings can, however, be expected to continue to increase, as more and more leather will be exported in finished form. Besides maximizing its export earnings, the leather industry could provide important job and income opportunities. TABLE I WORLD LIVESTOCK POPULATION PER 100 PERSONS IN SELECTED COUNTRIES. (1964-65) Cattle (including buffalo) Goats Sheep Argentina 209 23 207 Australia 165 - 1,502 Brazil 103 - Denmark 70 _ _ Ethiopia 112 80 .110 Iran _ 56 138 Mexico 79 3 _ New Zealand 258 - 2,036 Nigeria _ 35 South Africa 30 214 Turkey _ 67 103 India 50 14 9_ Wiorld average 35 11 31 Source: FAO Production Year Book (1966) TABlIE II SECTORAL DISTRIBUTION IN 1961 Curing, tanning and Manufacture and finishing of hides Manufacture and repair of leather and skins and prepara- repair of leather products other tion of finished leather footwear than footwear No. of No. of No. of No. of persons No. of persons No. of persons Units employed - Units employed Units employed Large scale factory sector 50 10,298 6 1,242 3 259 Medium scale factory sector 363 8,420 65 1,739 38 794 Small scale factory sector n.a. 19,847 n.a. 162,930 n.a. 18,663 Household industry sector n.a. 91,478 n.a, 465,413 n.a. 30,o57 Total n.a. 129,0h3 n.ea. 631,324 n.a. 49,773 Sources: Annual Survey of Industries 1961 and the Census of India 1961. Note: The A.S.I. consists of two parts: the Census Sector enumerating factories employing 50 or more workers using power and 100 and more without power; (i.e. large scale factories) and the Sample Sector which covers factories employing 10-49 workers using power and 20-99 workers without. (i.e. medium scale factories). By deducting the employment from large and medium scale factories from the non-household sector of the Census of India, we arrive at the small scale factories. The Census gives also figures for the house- hold industry sector. TABLE III FIXED AND WORKING CAPITAL EP.YED IN H2 INDUSTRY ( 1962-63) Per Rs 1,000 worth of output Fixad Working Fixed Working Sector ~~~~Out Dut CaDital Capital~ Ca ital Ca ital Sector (Million RO) _(RsJ (R-sT Large scale factory sector (Tanning industry) 1610077 12.298 29.657 76 184 Large scale factory sector (Footwear industry) 22.775 1731 s0191 76 184 Large scale factory sector (Other leather-goods industry) 0201 0o053 0129 76 184 Medium scale factory sector (Tanning industry) 1770415 80h62 21o679 48 122 Small scale factory sector (Tanning industry) 3610454 9036 22-109 25 75 Horusehold industry sector (Tanning industry) 1970600 1.976 4.940 10 25 All sectors 921600 331561 97-705 36 95 Source: "Survey of India's export potential of leather and leather products". Gookhole lnot2Eta Poona TABLE IV ESTIMATES OF NUMBER OF HIDES AND SKINS PROCESSED IN THE COUNTRY (1967) Total hides Estimates of Imports Exports and skins Item production (1967) (1967-68) (1967-68) processed (1967) (Million number) Cow and other cattle hides 9.34 0.05 - 9.39 Cow calf skins 6.75 - - 6.75 Buffalo hides 3.92 0.19 - 4.11 Buffalo calf skins 4.67 neg. - 4.67 Other hides - - 0.29 Goat skins 30.69 0.06 7.32 23.43 Sheep skins 19.74 0.10 neg. 19.84 Reptile skins - - 0.41 Other skins - - - o.06 Total 68.95 Source: Gokhale Institute Poona (October 1969) TABLE V Exrports of H ides, Skinsj~ Leather and Leather Goods Year Total Exportes )dex of S de of of Categori.e Re. Earnings in U.S. $ in Nillion Rs. (1957 - 100) Jillion Eamrings ____.__.__.____ (1957 - 1991) 1957 315-036 ICO000 66.184 1000CO 1958 275.269 87-38 57,830 87-38 1959 427-596 13573 809831 135073 1960=61 380-825 120 88 80oG05 12088 1961=62 366o922 160 47 770084 116o47 1962=63 364o675 115076 76.6i2 nSl576 1963.64 399-310 126o75 83-889 226o75 196I-65 h080351 129.62 85O788 129262 1965-66 i35-559 138o26 91o504 138.26 1966=67 825-914 262.16 26.667 176-58 1967-68 701o872 222.79 93-583 1IoW10 1968-69 871.694, 276-70 116.226 175.61 1969-70 992o172 311-93 231-9by 199-36 Soureso Nonthlg Statiaties of the ForQig Tprdo of Indiao TABLE VI EXPORTS OF LEATHER BY COMHODITIES Category 1957 % of total 1968/69 % of total Goat skins 1h002 4509 42803 49097 Index (Current prices) 100l 0 305.0 Index (Volume) 100l 0 165.0 Sheep skins 6301I 20.38 16509 19.36 Index (c.p.) 100l 0 2020 Index (Volume) 100l 0 145l 0 Cattle and buffaloe Hides 62.2 19.99 124o 1 1h4h7 Index (cOpO) 100l 0 199.0 Index (Volume) 100l 0 99.0 Finished Leather 114 h0 32 _108 1.26 Index (c0po ) 100l 0 - TO Index (Volume) 100l 0 4600 Leather po2ods 27.5 884 93o3 10.89 Index (c.p.) o1000 339.0 Indes (Volume) 100l 0 252.0 Exotic skins 4X03 139 34o.7 h4O5 Index (c.p.) 100l 0 00-675 Index (Volume) 100l 0 153.0 Totz 31l.0 loO0 857.1 10O0 Index (Current prices) 10000 274o0 Index (Volume) 100l 0 159.0 Source: Foreign Trade Statisties0 TABLE VII Percentage Shares of Selected Countries in India's E;x';,ort<' of Hite,es,Skins,Leathrer and Leatner Goods:l1u7'-197:6- (Value in million rs. Figures in brack.ets are percentages o1 tocal Iindian Exports) Yea.- Selected Importing Cowntries - - U.-K. -:U.-S.S.R. ltaly France U-.S.A. -West A-JEpan Total Germany 1957 160.955 38.427 6.171 3.666 25.819 24.377 10.551 274.966 (51.75) (12.36) (1.98) (2.79) (8.30) (7.84) (3.39) (88.41) 1958} 125.428 32.942 5.561 10.473 27.607 23.625 7.505 233.141 (46.09) (12.11) (2.04) (3.85) (10.15) (8.68). (2.76) (85.68) 1959 192.6,98 67.899 7.698 11.261 - 40.403 39.343 9.323 368.625 (45.78) (16.13) (1.83) (2.68) (9.60) (9.35) (2.21) (87.58) 1960-El 151.807 56.110 8. 741 14.391 36.871 L0.636 11.G93 3d0.249 (40.31) (14.90) (2.32) (3.82) (9.71) (10.79) (3.11) (84.96) 1961-62 142.437 33,444 9.282 17.609 42.373 44.068 15.093 3C04.306 (39.Y47) (9.27) (2.57) (4.88) (11.71) (12.21) (4.18) (84'.29) 1962-63 126.417 6o.419 12.533 17.073 40.958 24. '03 14.001 295.504 (35.29) (16.87) (3.50) (4.77) (11.46) (6.73) (3.91) (82.53) 1963-64 139.099 69.460 20.089 18.583 46.022 25.674 17.337 336,264 (35.11) (17.53) (5.07) (4.69) (11.68) (6.48) (4.38) (84.94)) 1964-65 128.253 69.527 2C1.374 22.878 42.965 ,2.317 17,334 334.653 (31.76) (17.21) (5.29) (5.66) (10.63) (8.oc) (4,29) (82.84) 1965-66 119.779 &±.624 23.922 30.590 61.507 38.053 13.165 371.644 (27.92) (19.73) (5.58) (7.13) (14.34) (8.87) (3.07) (86. 6') 1966-67 190.293 252.943 66.396 49. 541 55.080 59.827 24.732 698.812 (23.26) (3,0,92) (8.12) (6.o6) (6.73) (7.31) (3.02) (85'.2) 1967-68 164.179 i65.90,' 66.805 39,102 64-.672 43.249 26.189 570 281 (23.73) (24.0C0) (9.67) (5<65) (Q.35) \'6.25) (3.78) (82.43) 1968-(9* 199,.668 186.145 88.o0'6 65.375 65.645 52.347r 32.790 690.CC6 (S2o.29)n (21.71c) (10.2tl_7) (7y637 o he ri (6.11 Td3e83) o'n9) Sour-,(! Month^ly Statistic-s of the ForeiLm Tra,?de o-f India. TABLF. VIII ESTIMATED PRODUCT'ION OF HIDES AND SKINS 1968/69 1973/7h 1978/79 Cattle 17.550 (10) 21.060 (12.0) 26.325 (15.0) Buffaloes 9,o95 (17) 9,922 (18) 11.360 (20) Goats 36.359 (55) ho.3h8 (57.5) 44.690 (60) Sheep 20.529 (48.0) 21.917 (49.0) 23.390 (50.0) Note: Estimates in million pieces. Figures in brackets are percent ratios of hides/skins to corresponding population. These estimates are based on the assumption that the government will pursue in future an active program of recovery of carcass and that it will implement the setting-up of modern livestock processing plant for goats and sheep. TABLE IX UTILIZATION OF HIDES AND SKINS IN 1968/69 AND THE POSSIBLE UTILIZATION IN 197 3/74 (in million Rs valued at 1968/69 export prices)!/ Used in Domestic Production Production Exports of Footwear 1968/69 1973/74 1968/69 1973/74 1968/69 1973/7h Cattle and buffaloes and calf skins Tanned but unfinished 507 425 124 1147 383l 328 Finished 295 450 7 9 288 4141 Total 802 925 131 156 671 769 Goat Skins Tanned but unfinished 362 h54 384 450 - 4 Finished 9 30 5 25 4 5 Total 371 4814 389 475 4 9 Sheep skins Tanned but unfinished 208 2.11 166 200 42 11 Finished 7 20 4 16 3 4 Total 215 231 170 216 45 15 All hides and skins Tanned but unfinished 1,077 1,1140 674 797 425 343 Finished 311 500 16 50 295 450 Total 1,388 1,6140 690 847 720 793 Source: Cokhale Institute - Poona. RESTRICTED Report No. SA - 20a INTERNATIONAL BANK FOR RE-CONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOB4ENT ASSOCIATION EXPORTS 0? IRON ORE INDIA May 27, 1971 South Asia Department INDIA EXPORTS OF IRON ORE TABLE OF CONTENTS Page SUI1IMARY AIHD CONCLUSIONS ..........................************* i I. THE WtORLD MARKET FOR IRON ORE ............................ 1 - Background ............. ....................... *.. 1 - The Impact of New Technologies ...................... 1 - iforld Resources of Iron Ore ......................... 3 - '.Jorld Demand for Iron Ore ........................... 3 - Trends in Production and Apparent Consumption ...... . 4 - The Changing Pattem of Trade . ...................... 5 - Trend in Pric es . o .................................... 6 II. INDIAN SUPPLIES OF IRON ORE .............................. 9 - Indian Reserves and Potential Ores ................... 9 - Inventory of Indian Resources, By Regions and Types . 9 - Indian Production of Iron Ore ...................... .. 11 - Trends in Domestic Consumption ..... ................. 13 III. THE STRUCTURE OF INDIAN IRON-ORE COSTS .................... 15 - The Structure of the Indian Mining Industry ......... 15 - The Components of F.O.B. Prices ..................... 16 - Mining Costs ........................................ 17 - The Problem of Transportation ............. ........... 18 IV. f'TDIAN EXPORTS: PAST PERFORML4NCE ........................ 19 - The Institutional Framework ......................... 19 - The Volume and Geographic Pattern of Trade * ......... 20 - The Japanese MIlarket *................................ 22 - Changes in the Quality of Indian Ores Entering International Trade .............. ...a ........ 23 - Trend in Prices of Indian Ores ....** ...***.0e..0...4 24 V. INDIAN EXPORTS: PERSPECTIVES ................. ........... 25 - Indian Export Capacities in the Fourth Plan Period .. 25 - Internal Requirements of Iron-Ore ..... .............. 25 - Transportation Costs ...........0.*06**6. 4 00..0.......0 26 - The Fourth Plan Provisions for Ports ............... 26 - The Future Growth of the Japanese Market ............ 28 - Trend in Prices ..................................... 29 - Some Tentative Estimates ............................ 29 EXPORTS OF IROi ORE SU-11ARY AND CONCLUSIONS 1. In 1950 Indian exports of iron ore amounted to less than 100,000 tons and accounted for a negligible percentage of total export earnings. In 1968/69 they reached a level of 16 million tons, earning US$118 million of foreign exchange (6.5% of total exports). Provided that certain basic con- ditions are fulfilled, this growth is expected to continue in the next few years. .-Thile the Fourth Plan objective (31 million tons by 1973/7h) may be on the high side, a target of 26-27 million tons can be considered feasible at this time. Assuming that the relative price stability of the past few years t-ill persist, this wiould imply that the value of Indian exports of iron ore will increase to about $190 million by 1973/74. 2. It does not seem that the growth of the domestic market will place substantial restraints on the expansion of Indian export capacity, even if the current projects of mine mechanization and development are not completely realized. Neither is India going to face any serious problem of physical availability of iron-bearing materials, meeting the required specifications. Moreover, given the state of technology and the structure of relative prices, it seems unlikely that the degree of substitution between steel and alterna- tive materials (aluminum, plastics, concrete, etc.) t'4ill increase substantially in the short run, eycept perhaps in very special manufacturing activities. 3. A major unknoT^m is the future rate of growth of the Japanese steel industry; major both because of the heavy dependence of Indian iron ore exports on that market (80% in 1968/69) and because of the impact that any variation in Japanese demand might have on international prices. As for the required degree of ore beneficiation, the present tendency to use less and less unprepared ore in blast-furnaces has to be weighed against the building up in Japan of a massive internal capacity of sintering and pelletizing. So, the final effect on the composition of ore demand will depend, among other things, upon the relative cost of ore beneficiation at home and abroad. Reportedly, air pollution considerations could influence the choice. 4. Given Japan's policy of diversifying its sources of supply and the stiff competition from Australia and South America, it does not seem an easy task for India to maintain her share of that market. It is a rather alarminag fact that over the past few years while Japan has become an increasingly important market for Indiats exports of iron ore, India has become a diminish- ingly important source of supply for the Japanese steel industry. In the long run, the Indian bargaining position could improve, if the European steel industry adopted a diversification strategy more similar to the Japanese one. However, at this moment only a few signs seem to point in that direction. 5. In the medium term, the major bottleneck to the improvement of India's competitive position is transportation. Land transport costs are extremely high in terms of total f.o.b. costs because of the geographical distribution-of deposits, the lack of road and rail facilities (including loading and unloading devices) and the inadequate quality of ports. In order to accommodate the new large ore carriers and to maximize the economies achievable through their use, massive investments are required in some of the major Indian ports. From this point of view, the speed of loading seems to be as much an important factor as the tonnage of the vessels that can be accommodated, since ship delay costs are an increasing function of ship size and may represent a substantial portion of freight costs. 6. So far, no integrated mine-rail-port system of the type success- fully experimented writh in other countries has been developed in India. The institutional changes involved in and the benefits stemming from such a solution have been studied by the National Mineral Development Corporation and are now being considered by the Government. WJhile it is not yet clear whether and when this proposal will be implemented, it seems unlikely that it can have any substantial impact during the Fourth Plan period. I. THE WORLD MARKET FOR IRON ORE Background 1. Over the last twenty years, Indian exports of iron-ore have been increasing faster than any other traditional or quasi-traditional commodity. While in 1950/51 they amounted to less than two million rupees, accounting for a negligible percentage of total exports, in 1968/69 they reached a level of $118 million, representing more than 6.5% of export earnings. This growth is expected to continue in sub- sequent years. A number of economic and technological factors provided the framework for these developments and may influence the future pattern of growth. A summary assessment of these factors is attempted here. The impact of new technologies on iron-ore mining and trade and the evolution of the world market for iron ore are briefly discussed in this section. The trends in Indian production and "apparent consumption" of iron-ore and some basic data on Indian reserves of ore by regions and by chemical properties are considered in Section II. The micro-economics of iron ore mining in India is introduced rather cursorily in Section III, which contains also some rough quantitative estimates of production costs. An overall assessment of the past performance and perspectives of Indian exports of iron ore is attempted in Sections IV and V. The target year of the Fourth Plan (1973/74) is assumed throughout as the forecast year. The Impact of New Technologies 2. The world market for iron ore has undergone profound changes since the Second World War, with respect to the volume and the geograph- ical pattern of trade, the quality of the ores traded and the prices. Some complicated-interrelationships between economic c,hanges and tech- nological innovations lie behind these developments 2 3. The rapid increase in the world demand for steel, stemming from reconstruction requirements and then stimulated by the rapid growth of the main developed countries, induced a considerable depletion of the traditional sources of high grade ores. The growing expensiveness of quality ores and the rapid exhaustion of supplies of wartime scrap stim- ulated the research for new sources of supply and for new techniques of mining, beneficiation and smelting. 4. In the meanwhile, as a result of a number of scientific and technological advances during the war, many areas became accessible which were still barely penetrable a few years before. Systematic geological surveys were carried out in many parts of the world. New photographic and magnetic techniques were perfected. It became economical to apply geophysical methods, which so far had been employed only for more valuabl, minerals:. Many governments of developing countries -(including India) encouraged these efforts, realizing the possibility of developing their iron-ore resources, both as an export industry and as the basis of a national steel industry. / This section relies heavily on E.C.E., The World Market for Iron Ore, (New York, 1968). -2- 5. iThe so-called "transportation revolution" accelerated this process. Traditionally, overseas ore mines could export economically only if they were located along the main "tramping" routes. The ships were slow and not adapted to carry bulk cargoes. The shortage of loading and unloading facilities was a further cause of prohibitive freight costs. After the Second Wlorld War, new shipbuilding techniques, developed to replace the war losses, were applied to the construction of large carriers of special design. The savings in terms of manufacture and operation costs and, at the same time, the improvements in ports and port facilities contributed to reduce the freight costs to a level at which they wiere no longer an absolute obstacle to the long distance transportation of higher grade ores. 6. As the supply of imported high-grade ores increased, the demand for domestic low-grade ores, difficult to beneficiate, began to decline. New steel plants were built on the coasts to take maximum advantage of imported ores. On the other hand, the growing scarcity of better grade coking coal stimulated the research for new t7chniques of iron-ore prepara- tion._/ Sintering and later on pelletization_ were developed to upgrade the quality of available ores, to utilize the fines arising during transportation and to avoid the wastage of natural fines contained in the newly discovered ceposits. In some cases, low-grade ore bodies became again economical to mine (this happened, for instance, in Canada, in the U.S.A., in U.S.S.R. and in Sweden). 7. The availability of concentrates (sinter, pellets) with regular physical and chemical characteristics and of high-grade natural ores made it possible to control blast-furnace burdens to an extent impossible before. The average size of blast furnaces increased and their productivity improved. In turn, this stimulated or favoured the introduction of new smelting techniques, such as fuel-injection, high top pressure, oxygen blowing3/etc. U.N., Economic Aspects of Iron-Ore Preparation, (Geneva, 1966). The sintering process consists of heating a bed of ore on a grate, together with coke fine and various materials designed to give the sinter the required qualities. Sintering provides blast-furnaces with materials which are well-sized, but of uncertain shape and varying dimension. In pelletizing, the shape and dimensions of the particles are more strictly defined (pellets are usually less than one-half inch diameter). For more details, CFR. U.N., Economic Aspects cit. In the case of oxygen blowing, the main factor was the availability of cheap oxygen. -3- World Resources of Iron-Ore 8. The results of the intensive research for new supplies of iron- ore are reflected in the rapid increase in the estimated world reserves. A United Nations survey of iron-ore resources , made in 1954, estimated world reserves of ore at 84,500 million tons, containing some 41,700 million tons of iron. A new estimate, made by E.C.E. in 1967 . indicates a level of "reserves", i.e. mineral masses immediately exploitable, of 248 billion tons and a stock of about 205 billion tons of "potential ores", i.e. ore deposits exploitable under more favorable technological, economic or local conditions than those existing. It is possible that these estimates are to be revised upward, taking into account the result of further explorations and the upgradings induced by the economic and tech- nical progress. Table 1: World Iron Ore Resources by Regions (situation: January 1966) (billion tons) Reserves Potential Ores Western Europe 20.0 5.3 Eastern Europe 104.3 14.2 (incl. USSR) North America 52.9 93.0 Latin America 41.8 42.1 Africa 12.6 13.9 Far East and Middle East 8.4 29.5 Oceania 8.2 7.0 TOTAL WORLD 248.2 205.0 Source: E.C.E., The World Market for Iron-Ore (New York, 1968) World Demand for Iron-Ore 9. The aggregate world demand for iron-ore shows, in general, a fairly strong statistical correlation with world steel production, which in turn reflects rather closely the general growth of world manufacturing output. .21 U.N., Survey of World Iron Ore Resources, (New York, 1954) E.C.E., World Market cit. The meaning of these statistics is however somewhat liziited, because the reliability of national sources is pro- bably not homogeneous and because to a certain extent they are based on subjective assessment of the economic and technological situation in each country. The residual variance reflects the presence of factors such as: - changes in stocks and in stock policy - consumption of waste and scrap - changes in methods of ore preparation - substitution between steel and alternative materials (aluminum, plastics, concrete, asbestos-cement, timber, etc.) 10. It should be noticed that the general term "iron-ore" actually covers a wide variety of materials, which differ in the degree of prepara- tioira', in chemical composition and in physical characteristics. All these factors (and others, that will be mentioned below) affect the "metal- lurgical value" of an ore, i.e the possibility of substituting one ore for another in production. A simple, although ambiguous, index of the metal- lurgical value of an ore is the percentage of iron content. 'While this index may be useful as a first approximation, it must not conceal the fact that the "world market for iron ore" is actually a system of distinct, although interrelated, markets of differentiated products. This character of "mono- polistic competition" is further accentuated by the high incidence of transportation costs in the cif price. Trends in Production and Apparent Consunption 11. Since 1950 world steel production and pig iron production have shown a fairly consistent long-term growth rate of about 5-6% p.a. Steel production increased from 191 million tons in 1950 to 513 million tons in 1968, while pig iron output rose from 133 million tons to 372 million tons. During the same period, the world production of iron ore (actual tonnage) increased from 244 million tons to 632 million tons2/, i.e. at a comparable rate of growth. However, since the average iron content rose as well from about 46% in 1950 to over 50% in recent years, the world output in terms of iron content increased faster (at 6.6% p.a.), reflecting a decline in the proportion of scrap used. Because of the factors mentioned above, the volume of international trade has grown at a much higher rate than the production of ore or steel, from 26 mi'llion tons in 1950 to about 226 million tons in 1967. On the other hand, the average iron content of exports has increased faster than that of world output, the tendency being to import ores of higher grade and to consume leaner ores close to the mines, in order to minimize the transportation cost per unit of iron. - This term refers to processes like crushing, screening, roasting, agglomeration, concentration etc., which can be carried out at any point between the mine and the steel works. These figures refer to the marketable output and not to the quantities actu- ally mined (the difference being represented by ftines that cannot be sold). -5- Table 2 World Production of Iron Ore, Pig Iron and Steel (million tons) Iron Orell/ Pig IronY Steel Imports3/ 1950 243.6 131.9 191.6 1957 427.9 209.2 292.5 1960 513.6 255.8 346.5 1961 502.6 256.4 351.6 1962 507.8 265.2 360.2 1963 523.4 281.5 387.0 1964 581.3 317.6 438.0 1965 617.3 335.1 459.3 1966 635.0 3h7.O 476.1 1967 625.4 355.6 493.0 1968 632.0 371.9 512.6 / Actual tonnage Including ferro-alloys Including castings Source: E.C.E. op. cit. Page 40; World iletal Statistics, June 1970. 12. Although there are insufficient reliable data on which to base a precise assessment, it seems that the proportion of fines and concentrates with respect to lump ores has been increasing over the past few years, wlhile the eyports of ore wjith high phosphorus content have increased by much less than the total volume of exports. The first trend may be expected to continue in the near future. On the other hand, it seems too early to determine what will be the-effect of the nevw technique of oxygen blowing on the market for phosphoric ores. The Changing Pattern of Trade 13. Because of the widely different degrees of self-sufficiency of the main steel-producing countries, regional variations in the rate of rouTth of steel output have had a major impact on the pattern of world trade.l/ On the whole, the degree of self-sufficiency of the main consuming regions (excluding U.S.S.R.) has been declining since the beginning of the fifties. In Japan, almost the u?hole of the tremendous e;pansion of steel output had to rely on imported ores. Western Europe is now-supplying only about one-half of the 1/ UNCTAD, Problems of the Iron Ore ilarket (1969). -6- Table 3 vJorld Ex-ports of Iron Ore, 1950-1967 (million tons, iron content) Annual Data Grcwth Rates p.a. 1950 1957 1960 1965 1966 1967 1950-1960 1960-1967 -Jorld 21.8 64.1 80.6 121.2 123.7 132.9 14.0 7.4 Developing Countries 6.2 27.8 37.4 62.5 64.8 65.9 19.7 8.4 Developed Market Economy Countries 13.9 30.9 35.6 46.6 45.8 52.7 9.8 5.8 U.S.S.R. 1.6 5.4 7.6 12.1 13.1 14.3 16.7 9.5 Source: UiICTAD, Problems of the iron ore market (Geneva 1969) p.11. increase in its iron ore requirements, compared with nearly three-fourth in 1950. In the U.S.A. the proportion of total needs met by domestic production has remained roughly constant in the past few years at about two-thirds, while it was over four-fifths in 1950. Only in U.S.S.R. has production grown at a rate sufficient to supply not only the whole of its own require- ments, but also the bulk of the import requirements of the Eastern European countries. Analogous changes have occurred on the supply side. The share of lWlestern Europe in the world market has decreased sharply, from 50J in 1950 to 16% in 1967. By contrast, exports from the Far East countries (mainly, India, Malaysia, and Australia) have increased from less than 2% of world exports in 1950 to about 13% in 1967. Latin America's share more than doubled between 1950 and 1960, declining somewhat in recent years, under the pressure of the rapid expansion of African exports. Trend in Prices 14. A substantial portion of the world trade in iron ore consists of shipments from "captive mines" to steel plants under common ownership or is covered by long-term contract, extending in some cases for periods of more than 20 years._/ This circumstance and the fact that iron ores are widely differentiated in terms of quality and geographical location of deposits make it difficult to give a precise assessment of trends in prices. / A rising portion of Japanese imports is covered by such agreements. In their most usual form, they stipulate a given annual quantity with a certain margin of flexibility in favour of the buyer. The price is either given as a fixed figure or is expressed in terms of a basic value, which can vary from year to year according to an agreed formula. In some cases, the price is negotiated each year. Cfr. E.C.E., op cit., p. 88. -7- Table 4 Development of Statistical f.o.b. Unit Values of Iron Ore Exports from Selected Countries - 1950to-1965(US$ per ton of iron content) Sweden Canada Brazil Chile Peru Venezuela Liberia Malaysia 1950 9.9 11.8 10.9 4.0 - - - 10.4 1951 11.9 11.8 14.5 4.6 - _ - 12.2 1952 17.5 12.8 21.6 6.7 _ _ - 12.9 1953 19.0 14.o 21.0 8.1 - - - 11.6 1954 16.3 14.4 19.3 7.1 10.9 9.9 - 11.2 1955 16.4 14.8 17.4 7.6 7.8 11.1 16.0 11.5 1956 18.0 15.4 18.8 9.3 9.2 11.1 16.0 11.7 1957 19.8 16.8 20.0 10.6 10.6 12.3 16.5 12.1 1958 20.2 16.8 20.5 10.0 11.6 12.3 16.0 12.5 1959 17.4 16.5 16.4 10.0 9.7 12.3 16.0 13.2 1960 17.1 17.4 15.4 10.5 11.2 14.2 10.4 12.6 1961 16.8 17.0 14.4 11.0 12.2 14.2 10.4 12.6 1962 16.0 16.2 13.6 12.0 11.0 15.0 13.5 12.8 1963 14.4 17.2 12.8 12.5 10.3 13.1 11.1 13.2 1964 14.3 17.7 12.6 11.8 9.9 13.4 10.3 12.7 1965 14.4 17.5 12.3 11.0 12.0 13.3 9.8 12.0 Source: E.C.E. op. cit. pp. 69-73 15. The most usual indicator of iron ore prices is the "statistical unit value", i.e. the value obtained by dividing the actual f.o.b. price per ton of iron ore exported by the average iron content of the ore. The arithmetic mean of the statistical unit values (expressed in US$) for some of the major export. ing countries, shows two periods of peak prices in 1952-53 and in 1957-58 and a downward trend after 1958, with only a slight rise in 1960 (Table 4). The fluctuations in the market appear to be fairly small, at least compared to those of other "traditional commodities" (+ 10% at most from one year to another) and the dispersion around the mean seems to decrease rather regularly, possibly in connection with the improvement in the degree of competition brought -8- about by the decline in transportation costs. If the mean is weighted according to the tonnages of ore exported, the basic pattern is not very much affected. The only major difference is that the weighted values are always slightly higher,- perhaps because of the commercial advantages of the large exporters over the small ones. 16. Cif prices, of course, are strongly affected by freight costs; though to the extent that the market brings about a tendency to price equali- zation, this is much more apparent in the case of cif prices than for f.o.b. prices. The analysis of the statistical cif unit values for a sample of importing countries shows in general a declining trend since 1950, partially explained by the decline in the proportion of freight to the total cif cost. During the two peaks of 1952 and 1957, the increase in cif prices was greater than that in f.o.b. prices, because of the shortage of ore carriers. On the other hand, between 1953 and 1955 the decline in average f.o.b. prices was partially compensated by the rise in freight rates. Table 5 Development of Statistical cif Unit Values of Iron Ore Imports into Three Major Countries 1950 to 1965 (US$ per ton of iron content) United Kingdom Wiestern Germany Japan 1950 13.8 --- 1951 15.3 _ --- 1952 28.2 26.2 32.0 1953 27.2 25.2 25.5 1954) 25.4 22.6 22.h 1955 25.8 23.2 25.2 1956 27.7 25.4 32.8 1957 29.4 27.8 34.6 1958 27.3 26.4 26.9 1959 25.6 23.4 21.9 1960 24.4 23.2 22.6 1961 24.h 23.2 23.4 1962 24.2 22.2 23.h 1963 22.0 19.9 22.7 1964 20.9 18.3 21.9 1965 20.9 18.1 21.7 Source: E.C.E. op. cit. p.87. 17. A comparison of estimated export capacities and import needs of various countries in 1975 and 1980, attempted by the E.C.E. four years ago, indicated a strong probability of excess capacity and declining prices up to 1975 and a more balanced growth after that year.d Recent developments in the BE;C.E., op. cit., Chapter V. -9- Japanese market have shown that the growth rate of world import requirements had probably been much underestimated. Therefore, even taking into account the tremendous growth of Australia's export capacity, it seems now that there is some possibility of substantial price stability, at least in the near future. Some observers would even envisage some price increase after 1975.1/ II. IMDIAM! SUPPLIES OF IRON ORE Indian Reeerves and Potential Ores 18. India possesses large resources of iron ore. The most recent estimates place "reserves" (measured, indicated or inferred) at 7.2 billion tons and "additional potential ores" at 21.3 billion tons. This represents about 6%J of total world resources of iron ore, about 3%1 of world reserves and more than 10% of world potential ores. Among the countries possessing the largest reserves, India ranks the seventh, after U.S.S.R. (103.6 billion tons), U.S.A. (41.9 billion tons), Brazil (37.8 billion tons), Canada (11.0 billion tons), South Africa (8.6 billion tons) and Australia (7.5 billion tons).2/ Inventory of Indian -esources, by .2egions and by Types 19. Accordirng to the geological origin, the iron ore deposits in India can be divided imn tle major groups: a. Ferruginous formations of pre-cambrian age, similar to those of Brazil, Venezuela and U.S.A. (Lake Superior). Most of the large deposits belong to this group. b. Lateritic ore (concentration of hydrated oxides of iron with oxides of aluminum, manganese and titanium). These ores contain orly 25-35% Fe and are not likely to be exploited in the near future. c. Other types, such as titaniferous magnetites of the Taberg type. This opinion is shared by MMTC officials. E.C., op. cit., p. 26. Mlainland China's reserves are scarcely known. The amount indicated for Australia is to be revised after the recent discovery of large new deposits. - 10 - 20. The composition of Indian iron ores resources by type is the following: Reserves Potential Ores Tmillion tonsT Hematites 5,817 (80.4%) 17,630 Magnetites 922 (12.7%) 1,670 Limonites 500 ( 6.9%o) 2,000 TOTAL 7,239 (100.0%) 21,300 Hematitic ores have in general a high metallurgical value, because of their high iron content and because of their freedom from sulphur and phosphorus i!/ 21. The Indian deposits of iron ore are not concentrated in one district as are those of Australia and Peru, but occur in widely separated areas: mainly in Bihar, Orissa, Mysore, Madhya Pradesh and in the Goa territory. This is a major disadvantage, in terms of re- quired investments in basic infrastructure. Table 6 gives the state- wise distribution of reserves and potential ores. 22. Typical analyses of iron ore samples taken from various de- posits in India (Table 12) confirm the average good quality of Indian iron bearing materials, in terms of iron content and with respect to the percentages of phosphorus and sulphur. On the other hand, most Indian ores contain a very high percentage of alumina and the silica- alumina ratio is considered too low. This may cause serious disadvantages for transportation, crushing and screening, since the fines may become very sticky when the moisture content is increased i/ -/ G. S. Brady, Materials Handbook, (New York, 1947). U.N., Economic Aspects, cit., p. 166. -n1- Table 6 Tndian Iron Ore Resources, by States ,ilion tons) States Reserves Potential Ores Lbsolute amount % of total Bihar-Orissa 2748 38.0 8000 Madhya Pradesh 1586 21.9 7000 Mysore 1109 15.3 2800 Goa 535 7.4 Bengal 500 6.9 -- 1Madras 308 4.2 1000 Andhra Pradesh 304 4.2 50 Himachal Pradesh 60 o.8 60 Hyderabad 37 0.5 2060 Bombay 30 o.4 300 Kashmir 5 0.1 Uttar Pradesh 10 0.1 ) Rajasthan 5 0.1 )30 Patiala (Punjab) 2 ---) TCTAL 7239 100.0 21,300 Source: E.C.E., op. cit. Indian Production of Iron Ore 23. Stimulated by the rapid increase in external demand and by a growring internal market, Indian production of iron ore rose Prom about 3 million tons in 1950 to 28.3 million tons in 1969, i.e. at an average rate of growth of 12.4% p.a. This growth is partially due to the integration of the territoryr of Goa, whose production of iron ore represents about one fourth of the total Indian output; and partially to the opening-up of new mines and to increases in productivity. -12- Table 7 Indian Iron Ore Production 1950-1969 T illion tois, actual tonnage) India Goa All India %c Fe T exlu dir-g Go3a) 1950 3.0 0.1 61.3 1957 5.2 2.9 59.2 1960 10.7 5.8 60.0 1961 12.3 6.4 59.9 1962 13.3 6.4 59.h 1963 15.0 6.1 21.1 58.2 1964 14.9 6.o 20.9 58.9 1965 17.2 6.6 23.8 60.9 1966 20.1 6.7 26.8 61.2 1967 19.1 6.8 25.9 61.4 1968 20.6 6.9 27.5 n.a. 1969 21.3 7.0 28.3 n.a. Source: Mineral Trade Notes (1965-1970) 24. The average iron content of the ore produced in India has remained more or less constant at the 1950 level (about 60-615) well above the world average. The folloving table showss, for 1963, the Indian iron-ore production (excluding Goa) broken down by grades and areas: Table 8 Indian Iron Ore Production in 1963 by Grades and Areas (thousand tons, actual tonnage) Grades (5/ t'e) States +67% 65-67% 63-6750 60-63s 5d-60?O -5d5% TOTAL Andhra Pradesh -- 34 106 75 16 1 232 BUiar -- 1 1408 1811 168 82 3470 Maharaslhtra -- 3 -- 368 26 -- 397 1Niadhya Pradesh -- 110 1 __ 2232 - 2343 Mysore 338 1645 135 176 77 119 2490 Orissa 108 119 1510 539 3386 334 5996 Punjab -- __ __ 3 3 Rajasthan -- -- 25 33 4 67 TOTAL 446 1912 3185 3010 5909 536 14,998 Source: E.C.E., op. cit. -13- 25 The distribution of iron ore production by states in 1955, 1.960 and 1915 sho.rs a cont;inuing decline in concentration. This seems to have increased the structural disadvantages connected with a-widely scattered mining industry. Table 9 Indian Iron are Production by States 1955-1965 (- of total output) State 1955 1960 1965 Andhra Pradesh 8.3 3.0 0.9 Bihar 41.o 26.6 25.2 Madhya Pradesh 0.2 13.6 16.5 Maharashtra 1.0 3.0 2.3 Mysore 7.8 17.5 17.2 Orissa 40.2 35.o 37.8 Punjab- 0.5 0.1 -- Rajasthan 1.0 1.2 0.1 TOTAL 100.0 100.0 100.0 (Excluding Goa) Source: Statistics for Iron and Steel Industry in India (HSL, 1966) Trends in Domestic Consumption 26. Indian "apparent consumption"1! of iron ore is fairly well correlated to the domestic production of pig iron, both showing a long-term rate of growth of about 8.5% p.a. Occasional deviations from the trend reflect changes in stock policy or (what amounts to the same) lags in the induced demand for ore. The average rate of increase in crude steel output since 1950 has been slightly higher (9.2% p.a.), apparently because of a more intensive use of scrap and waste and also in consequence of increases in physical productivity due to the introduction of more advanced smelting techniques. The three time-series are summarized below: Apparent consumption is defined as domestic production of ore plus imports less exports. -14- Table 10 A Comparison of Indian Apparent Consumpt on of Iror, Ore, Production of Pi-hg I roduction of Crude steel 1950-1969 Iron Ore Apparent Consumption Pig Iron Output Crude Steel Outplit Quantity Index Quantity Index Qutty Index (mil. tons, (1950=100) (mil. tons) (1950=100) (mil. tons) (1950=10C iron content) 1950 1.9 100 1.7 100 1.5 100 1957 2.0 105 1.9 112 1.7 113 1960 h.6 242 4.3 253 3.4 227 1961 5.3 279 5.1 300 4.3 287 1962 6.3 332 6.3 371 5.4 360 1963 6.7 353 6.6 388 5.9 393 1964 6.o 316 6.7 394 6.1 407 1965 7.0 368 7.1 418 6.5 433 1966 8.1 426 7.0 412 6-.6 440 1967 7.6 400 6.9 406 6.3 420 1968 n.a. 7.2 424 6.5 433 1969 n.a. 7.3 429 6.7 447 Source: Statistics for Iron and Steel Industry in India (HSL, 1966), GOI, Economic Survey, 1969/70. Table 11 Analyses of Iron Ores from Various Deposits in India (percentages) Ore and Area Iron Phosuhorus Sulphur Silicon Aluminum Titanium Hematites iar-Orissa 55-59 0.03 - 0.38 0.01-0.05 1.0 - 6.5 0.9 - 6. --- Mysore 55-68 0.02 - 0.08 o.6 i 14.o 0.2 - 5.3 --- Madhya Pradesh 59-66 0.047-0.156 0.03-0.44 0.9 - 3.4 Goa 55-65 0.02 - o.o6 5.0 - 6.0 5.0 - 6.0 --- Nagnetites Bihar-Orissa 65-69 0.005-0.015 0.009-0.031 0.68-5.54 0.26-1.1o 0.13-0.50 1Madras 29-140 0.01 -0.1'3 --- 36-57 0.2 -3.9 --- Limonites Bengal 39-48 0.01 - 0.58 --- 16-21.8 4.0 -12.5 --- Source: I&.C.E., op. cit., p. 282. -15- III. THE STRUCTURF OF Ii'JDIAN IRON ORE COSTS The Structure of the Indian Mining Industry 27. The Indian iron ore industry is widely scattered not only from a geographical point of view but also with respect to the size and structure of costs of its operating units. Unfortunately, the lack of updated information on many mines and the state of flux of the industry preclude a comprehensive analysis of the main elements of iron ore costs in India. Therefore, what followss is intended to suggest some elements for a broad qualitative assess- ment rather than a precise quantitative description of the current situation. 28. The structure of the Indian iron ore industry, despite its rapid transformation in recent years is still characterized by a very low degree of mechanization and by the presence of many small-scale producers. On the other hand, a small number of larger mines is producing an increasing proportion of total output. The following table relating to 1963 classifies Indian mines by output: Table 12 Indian Mines by States and Output (thousand tons per year) State -25 25-50 50-100 100-500 +500 Total IIechanized* Bihar-Orissa 34 9 12 9 5 69 7 Madhya Pradesh 1 - - 1 1 3 1 Mysore 112 9 12 5 - 138 1 Punjab Rajasthan 13 - - - - 13 - Maharashtra 3 1 1 2 - 7 - Andhra Pradesh 33 - 1 - - 34 h TOTAL 196 19 26 17 6 264 9 Source: NCAEI Cost price structure of iron-ore (1965). * The term "mechanized" applies to mines in which two out of the three operations of drilling, loading and transport are done by mechanical means. By classifying Indian iron ore output in 1963-by size of mine (thousand tons output per year), the folloxring results are obtained: -25 25-5o 50-lao 100-500 +500 Total Percentage of total production 8.1 4.7 12.7 20.8 53.7 100.0 - 16 - 29. More details on some of the major mechanized or semi-mechanized mines are given in the following table. Table 13 Mechanized or Semi-Mechanized Iron Ore Mines (1966) Mine State Owner Capacity Output* (million tons p.a.) Noamundi Bihar Tata 2.1 Rajhara Madhya Pradesh Hindustan Steel 4.0 Barsua Orissa Hindustan Steel 3.0 Donimalai Mysore (Hospet) NMDC 5.0 Kiriburu Bihar NMDC 2.0 Central Block Kiriburu Bihar NMDC 4.0 Meghahatuburu Bihar NMDC 5.5 Bailadila 14 Madhya Pradesh NMDC 5.5 Bailadila 5 Madhya Pradesh NMDC 2.7 Daiteri Orissa Orissa Mining 2.0 Corporation Source: Statistics for Iron and Steel Industry in India, cit. p. 175. * After completion of development or mechanization works. The capacity output is calculated for 350 working days a year. The Components of F.O.B. Prices 30. Compared to the cost structure in other countries, the f.o.b. cost structure of the iron ore mining industry in India seems to be charac- terized by a very low relative incidence of mining costs (including profits) and by a smaller percentage of taxation and royalties charges. On the other hand, transportation costs and port charges are much higher. A study on the cost price structure of iron ore, prepared by the NCAER in 1965 1/ gave the following results: 21 NCAER: op. cit., page 22. E.C.E. op. cit., page 97, gives the following percentages, relating to a sample of mines which have come into produc- tion in different countries since the war, with outputs between 5 and 10 million tons a year: Mining and Beneficiation: 23.0-45.2% f.o.b. costs; Transportation: 19.1-24.8%; Port Charges: 3.3-6%; Financial Charges, taxation and royalties: 27.4-54.6%. -17- Table 14 Structure of P.O.B. cost of Iron Ore in India (,- of total cost) Element of f.o.b. cost Goa Bellary-Hospet Orissa-Bihar Chitradurga Other, Tumkur Mining and Beneficiation 24.6 4.3 9.2 5.9 14.' Transportation: 47.4 70.7 50.6 68.9 61.6 of which: road 24.3 27.7 12.5 31.7 19.2 rail 3.8 43.O 36.7 37.2 42.4 river/canal 19.3 - 1.4 - Loading at ports 16.1 19.7 33.1 21.0 17.C Taxation and Royalties 11.9 3.6 4.5 4.1 4.2 Others - 1.7 2.6 0.1 2.9 Total f.o.b. cost 100.0 100.0 100.0 100.0 100.0 31. The variables mentioned do not measure the efficiency or the pro- fitability of the industry as a whole, since under competitive conditions the structure of production and the level of output of each mine tend to adapt to those conditions. As a matter of fact, the level of "normal profits" sufficient to keep in business the marginal producers seems to be quite low, according to NCAER estimates.l/ On the other hand, this does not give any indication about the rate of '1excess" profits of non-marginal suppliers and about the total amount of profits in the industry. However, the variables mentioned may give some elements for a broad assessment of the main problems facing the ind4ustry in its process of growth. Mining Costs 32. The relatively low incidence of mining costs is due to three factors: a. Favorable local conditions. Nearly all mines in India are open- pits: ceteris paribus, underground mining costs would be much higher.Y b. Low costs of labor. Despite the fact that the physical pro- ductivity per capita is abysmally low, the costs of production in some mechanized operations are still very much higher than those performed by hand. NCAIER, Structure,cit. p. 21. However, as the depth of working increases, the amount of waste per ton-of ore raised and the cost of raising increase more than proportionately. This is fairly obvious, since open-pits have the-shape of a V, the angle depend- ing on the hardness of the rock and on the stability of the ground. -18- c. Low degree of ore beneficiation. At present, there is only one pelletization plant in Goa. with a capacity of 0.6 million tons. Host sinter- ing plants work only for the internal market. The small mines are sometimes described as "pick and shovel mines", all beneficiation being reduced to some preliminary screening and crushing. Of course, this is hardly an advantage, since the present tendency is to use less and less unprepared ore in blast- furnaces. Moreover, the value added during the processing in the consumer country tend to be discounted from the f.o.b. price of ore. The Problem of Transportation 33. The causes of the extremely high incidence of transportation costs are various, some of them being related to the geographical distribution of iron ore deposits and others to the lack or to the inadequate quality of basic infrastructures. The following table gives some data on the average length of haul from the source of supply to the steel plants in India: Table 15 Mines from WeJhere Iron Ore Supplies Distance from Name of Steel Plant are Taken Whether Captive WJorks in Kns) Bhilai Rajhara Yes 90 Durgapur Bolani & Others IJo 420 Rourkela Barsua Yes 80 Barajamda No 225 Banspani No 225 IISCO Noamundi Yes 125 Gorumahisani Yes 64 Joda Yes 150 IISCO Goa Yes 350 Source: Statistics for iron and steel industry, p. 174. Because of the shortage of adequate ports and port facilities, the average length of haul to ports used for ore export is much higher: -19- Table 16 Average Length No. of Loading No. of Ports Area of Haul Stations Used for Ore Exports Goa 62 1 Bellary-Hospet 626 5 7 Orissa-Bihar 424 3 2 Redi 13 1 1 Chitradurga-Tunkur 574 2 2 Punjab 582 17 7 Source: NCAER, op. cit., p. 19. 34. Of three forms of transport, river, rail and road in use now, the first is practically confinedto the Goa and Redi areas. In other areas the movements are made by rail and/or road. Despite the fact that road costs are lower only for very short hauls (say, 20Km. or less), in all areas except Orissa/Bihar much longer road hauls are used. This is done either to avoid transhipment from one rail gauge to another or because of lack of rail facilities. In addition, the average size of trucks is still very low, the medium capacity being less than 10 tons 2! No integrated system mine-rail-port has been so far developed specifically for iron ore exports. 35. The special problem of Indian ports is discussed in more detail in Section V below. IV. INDAN EXPORTS: PAST PERFORMANCE The Institutional Framework 36. The Indian export trade in iron ore was completely private until 1956, when the Government constituted the State Trade Corporation of India, which was subsequently put in charge of the entire ore export trade for India. In 1963 the Corporation was split into two separate organizations. Since then iron ore exports from all India (except Goa) have been canalized through the Minerals and Metals Trading Corporation (IJMITC). The EvITC buys ore on f.o.b. basis at designated railway loading points in the mining areas. IJhere rail facilities are not available the purchases are made at ports, the transportation being the responsibility of the mine owner. The Corporation sells ore through straight trade, preferably under long-term contracts or barter agreements (East European countries). In Goa the trade is still in the hands of private exporting firms 1/ NCAER op. cit., p. 27. -20- (some of which :re fordign), which in n-±ost cases receive the ore from their own mines and buy froi-ia other mines only the amounts necessary to supplement their production. The iITiT is active also in Goa, especially to support the smaller mines that have no export organization. The Volume and Georaph_ic Pattern of Trade 37. Since 1950 Indian exports of iron ore have increased from nearly nothing to about 17 million tons in 1969/70. Reportedly, India is likely to export more than 20 million tons during the current financial year.!/ tThile in 1950 the export earnings from iron ore were less than 2 million rupees, representing a negligible percentage of total exports, in 1963/69 they amounted to 884 million rupees (US$117.3 million), equivalent to 6.5% of Indian exports. According to the first estimates, this percentage has increased further during the last year. Including Gtoa, the average growth rate of the actual tonnage exported since the beginning of the sixties has been more thar 7.7% p.a. As the rate of increase in total output during the same period has been substanti- ally less, the percentage of export to production has increased from 31.8% in 1960 to 60.1% in 1969. Of course, the integration of Goa, whose production is largely exported, accelerated this trend. Table 17 Indian Production and Exports of Iron Ore 1950-1969* (million tons, actual tonnage; million rupees) Production Exports Exnorts as a , of Production Quantity Quantity Value (in terms of quantity) 1950 3.0 o.06 2.0 2.0 1957 5.2 2,3 117.6 44.2 1960 10.7 3.4 172.8 31.8 1961 12.3 3.4 17f.4 27.6 1962 13.3 3.8 198.2 28.6 1963 21.1 9.9 363.8 46.9 1964 20.9 10.6 372.1 50.7 1965 23.8 12.3 421.0 51.7 1966 26.8 13.4 695.7 50.0 1967 25.9 13.7 7h7.8 52.9 1968 27.5 15.6 884.2 56.4 1969(M*) 28.3 17.0 937.5 60.1 * Goa is included from 1963 onwsard. ** Provisional. Source: EChFE, Statistical Yearbook 1968; GOI, Economic Survey 1969/70. i/ This figure was supplied by a MAITC official in Delhi. 38- In 1950 the Indian share of the world market for iron ore was negliCibla. Ten years later. Indian exports of iron ore represented about 6.6% of the world trade. Since then, despite the growing competition from South America and Australia, India has been able to maintain her position. (See Table 18 below). ralie 18 Indian Share in the World Market for Iron Ore (million tons, iron content) Indian Exports as a India's Exports* World Trade % of World Exports 1950 0.1 21.8 0.5 1957 2.9 64.1 4.5 1960 5.3 80.6 6.6 1965 7.5. 121.2 6.2 1966 8.3 123.7 6.7 1967 8.3 132.9 6.2 * Including Uoa Source: WNCTAD op. cit., p. 11. 39. The geographical distribution of Indian iron ore exports is partially predetermined, since the freight costs are still a substantial, although declining, portion of cif prices. In the early fifties the only feasible markets for Indian iron ores were Japan and, to a lesser extent, Europe (mainly Western Germany and Italy). The closure of the Suez Canal severely impaired the competitiveness of Indian ores in the WJestern European markets; since then the percentage and after 1960 even the absolute amount of Indian exports of iron-ore to -western Europe have been declining. The decline was more than compensated by the increase in exports to Eastern Europe. However, since 1960 the Eastern Europe's share has declined sharply. The bulk of the increase in Indian production and exports of iron-ore has been absorbed by Japan. In 1967/68 exports to Japan represented more than 80% of Indian trade in iron ore. And this percentage is expected to increase even more in the next few years. The table below shows the evolution in the geographical pattern of Indian trade from 1950/51 to 1967/68. -22- Table 19 indian E orts of Iron Ore by Countries bofbtotal exports) 1950/51 1957/58 1960/61 1967/68 Japan 100.0 61.5 51.9 80.7 Western Europe: - 23.1 8.0 3.6 EEC - 19.3 7.3 UK _ Others _ 3.8 o.6 Eastern Europe - 15-4 40.1 15.7 Total 100.0 100.0 100.0 100.0 The Japanese Market 40. It should be noticed that -hile Japan is becoming a more and more important market for Indian exports of iron ore, India is becoming a less important source of supply for the Japanese steel industry. This-evolution is clearly due to Japan's policy of diversifying its sources of supply. WhlLile in the short run this may be of some advantage for some suppliers (including India), since it brings about a non-perfect equalization of cif prices, in the- long run it may be a considerable disadvantage, in the sense that it may accen- tuate the "Imonopsonistic" character of the market. The following table shows the origin of iron-ore imports into Japan since 1950. Table 20 Sources of Iron-Ore Imports Into Japan (percentages based on iron content) 1950 1957 1960 1964 1969(*) Canada - 3.0 6.6 5.7 2.3 USA l.1. 5.2 6.1 5.3 Chile - - 1.7 18.0 12.0 Peru - 4.4 4.4 11.6 10.1 India 6.6 29.8 30.0 21.5 18.9 JYalaysia 36.5 30.9 35.7 21.2 4.1 Australia - - - ... 25.4 Others 56.9 20.8 16.4 15.9 21.9 Total 100.0 100.0 100.0 100.0 100.0 * January-June 1969; percentages based on values. Source: ECE op. cit., p. 67; UN, Directions of Trade (1970). -23- Chne nth ult of Indian Ores Entering International Trade 41. It is difficult to assess the quality of Indian iron ore exported. By definition, the metallurgical value of an ore depends on how much it costs the consumer to convert this ore into steel compared w4th the costs wlhen using other ores. Other things being equal, this depends both on the chemical and physical characteristics of the ore (iron content, percentage of impurities, degree of preparation, etc.) and on the pattern of production in the consumer country. Since most blast furnaces operate on a blend of various ores, the metallurgical value of each ore depend on the characteristics of the others. Moreover, the other circumstances being equal, this value depends also on the availability and quality of the coke, of other fuels and of fluxesl/. The technology of the steel plants is also an important variable.Y/ It is clear, therefore, that the metallurgical value of an ore cannot be defined unequivocally, but will vary from one consumer to another. 42. Of course, under the pressure of competition both the pattern of production in exporting countries and the pattern of utilization in consumer countries tend to adapt to changing external conditions. However, this process is necessarily slow, because of the length of gestation periods and because both the mining and the steel industry require considerable capital investments, which cannot or cannot easily be adapted to new technologies. Incidently, this explains one of the reasons why it may be difficult for an exporting country to enter new markets. 43. The Table 22 below shows that the average iron content of Indian exports has steadily increased from about 55% in 1950 to 61% in 1967. To the extent that the metallurgical value of an ore is an increasing function of the iron content, the time-series shows a progressive improvement in the quality of Indian exports. The table indicates also that, at least in recent years, the quality of Indian ores can be compared rather favorably with that of ore exported by some of her major competitors in the Japanese market. If the coke is very pure, a higher sulphur content may be acceptable. If cheap gas or oil is available, the cost of the extra heat required to smelt a poorer ore may be negligible. For more details see: UN: The Economics of Ore Preparation, cit. For instance, a fully integrated steel plant with adequate sintering capacity can accept ore containing a very high proportion of fines. On the other hand, small steel plants equipped wAth limited capacity furnaces will require high-grade ores, since they cannot handle large amounts of slags. -24- Table 21 ';n InterrnŽtional Comparison of Iron Content of Exports Tperc entages India* Peru Chile Brazil South Africa 1950 55.0 ... 60 68 60 1957 57.0 60.0 60 67 60 1960 60.0 60.0 61 65 60 1964 60.0 62.0 62 64 60 1965 61.0 1966 61.9 1967 60.6 * Including Goa Source: ECE op. cit., p. 60; UNCTAD, op. cit. Trend in Prices of India Ores 44. As it was mentioned before, because of the ambiguities in the definition of the' metallurgical value of an ore, it is rather difficult to follow the evolution of iron ore prices. The "unit value" of iron-ore exports, obtained by dividing the total value of exports by the amount exported, is a biased statistic, which tends to lump together quality variations and price changes. The "statistical unit value", calculated by dividing the unit value of exports by their average iron content, at least enables us to isolate one of the factors that influence the metallurgical value. According to this indicator, the-following results were obtained for India. Table 22 Trends in Prices of Indian Iron Ore F.O.B. Price of India Exports* Index Per Ton of Iron Content (1973=100) (US$) 1950 9.4 71.8 1957 18.7 142.7 1960 18.7 142.7 1961 18.4 140.5 1962 18.7 142.7 1963 13.1 100.0 1964 12.0 91.6 1965 12.0 91.6 1966 11.9 90.8 1967 12.0 91.6 1968 12.1 92.4 1969 12.1 92.4 * Including Goa Source: ECE op. cit., p. 71. -25- The twro peaks in 1957 and in 1962 and the downward trend in prices during the fiftieg reflect quite closely the evolution of the world market, After the drop in 1963, a period of remarkable stability has followed. The moat recent indic&tioc seen to. point toward some slight increase rather than in the opposite directilow. V. INDIAN EXPORTS: PERSPECTIVES Indian Export Capacities in the Fourth Plan Period 45. Given the level of Indian iron ore reserves, there will be no problem of physical availability of iron bearing materials for many decades ahead. As a matter of fact, the reserves so far identified could sustain a volume of production double the current one for at least one century. The main problems on which the future course of Indian production and exports of iron ore will depend are problems of investments, costs and demand. )46. Indian output of iron ore in 1968/69 was about 28 million tons (actual tonnage). The Fourth Plan envisages an expansion of production capacity of 23 million tons to reach a level of about 51 million tons in 1973/74. Out of this, some 20 million tons are expected to be produced by the captive mines of the steel plants and about 14 million tons by the public sector mines. The capacity output of Goa is anticipated to be around 8 million tons at the end of the Fourth Plan period. 47. The production required for export is expected to be met from Bailadila 14 and 5 (Madhya Pradesh), Barajamda (Orissa and Bihar), Daitam (Orissa), Bellary-Hospet (M4ysore) and Goa. The Kiriburu ore, which is now being exported to Japan,will be diverted to the Bokaro plant and its export commitments will be transferred to Bailadila 5. The toal export capacity in 1973-74 is expected to reach a level of about 31 million tons. Internal Requirements of Iron Ore 48. w hile it is by no means certain that the current schemes of mine mechanization andWdevelopment will be realized on schedule, it is even less certain that the domestic expansion of the steel-industry will absorb the indicated proportion of the total increase in iron ore output capacity. As a matter of fact, most observers would now agree that under the most favorable circumstances, the steel industry cannot be expected to produce more than 8 million tons of ingot steel and 6 million tons of finished steel by 1973/74.1/ This would represent a substantial curtailment (say between 20% and 25%) in the expected rate of increase of domestic requirements of iron ore, which, in turn, would make less difficult the achievement of the expected rate of growth of export capacity, even if the output expansion projects were not completely realized. Economic Report, p. 65. -26- 49. A major unknown is represented by the quality of this expansion, in terms of production costs. This-would be decisive in the stiff competition with Australia and South America on the Japanese market and in the longer run it will also condition the possibility of entering new markets (especially in Europe). Transportation Costs 5o. As was mentioned above, in India even more than elsewhere it is true that the economics of the iron-ore industry is the economics of trans- portation. The NCAER estimated that, purely by reduction of the length of haul from mine to port, costs could be reduced from 48-70% of the f.o.b. price to 32-487%, without any reduction in the railway freight structure.i/ Fourth Plan Provision for Ports 51. However, the possibility of reducing land transportation costs depends not only on the availability of adequate railway facilities, but also on the geographical distribution and the quality of ports. Because of insufficient rail and port capacities, iron ore exports are now canalized through a number of routes (some of which incredibly tortuous) to some seventeen ports, none of Twihich can accommodate vessels of more than 35,000 dwt. The Fourth Plan strategy is to concentrate most of the iron ore exports in a few ports with adequate loading facilities and the possibility of accommodating larger carriers, from a minimum of 35 - 40,000 dct., (Paradip) up to 100,000 dwt. (Visakhapatnam). The following table give the current and expected distribution of iron ore exports, by ports of shipment. 1/ NCAER op. cit., p. VII. -27- Table 23 Indian Iron Ore Expprts by Port of Shipment (million tons, actual tonnage) 1974-75 Source of Ore Port of Shipment 1968-69 (IV Plan Projection) Barajanda Calcutta 0.5 - Haldia _ 3.0 Paradip 1.2 2.5 Daitari " .,. 2.0 Kiriburu Visakhapatnam 1.8 - Bailadila " 1.6 8.0 BeUlary-Hospet Madras 2.0 5.0 '3 Marmugao o.4 1.0 Goa 7.3 9.0 Various sources Minor ports 1.2 0.5 Total 16.0 31.0 52. The economies achieved through the use of large size vessels are very sensitive to the type of port handling facilities. For a 65,000 dwt. carrier, the total daily cost in port is more than 75% of the total cost at sea and may be around $4,000 a dayl!. The table below shows the maximum loading rates of some of Nhe major ports in India, Chile, Peru and Australia as of mid-1966. India's comparative disadvantages in this field seem to be substantial. ECE op. cit., p. 114. -28- Table 24 A Comparison of Iron Ore Loading Capacity in India, Chile, Peru and Australia (situation: mid-1966) Ports Maximum Loading Rate Capacity (tons per hour) INDIA: Marmugao 600 Madras 600 Visakhapatnam 2650 Paradip 2500 (potential) AUSTRALIA: Koolan Island 3000 Port Hedland 3000 Dampier 6000 Vhyalla 2500 PERU; San Nicolas 3600 San Juan 2000 CHILE: Cruz Goaude 3000 Coquimbo 3000 Guayacan 3500 Huasco 2500 Source: ECE op. cit., p. 114. 53. The total amount of investment required for the development of ports and port facilities along the lines indicated by the Fourth Plan is estimated at As. 280 crores (about US$ 373 million), of which about one third is expected to be contributed by tne Port Trusts from their owm resources. Recent developments (Mormugao port) seem to indicate that full implementation of the plan may take longer (and perhaps greater investments) than expected. The Future Growth of the Japanese Market 54. Given the evolution of export capacities and production costs, the future of Indian exports of iron-ore will depend on the development of the world demand. In the medium term, this implies that the growth of the Japanese steel industry will be the crucial variable. .29- 55. Since 1960 the Japanese production of crude steel has increased at an average rate of 13.Oi p.a., from 22.1 million tons in 1960 to 66.9 million tons In 1968. During the same period, the growth rate of the apparent con- sumption of iron-ore has been about 16.0% p.a., the bulk of the increase coming from imports. The expected production of crude steel in 1975 is about 150 million tons. Assuming that the ratio scrap/iron-ore will remain roughly constani and that the domestic production of ore iill remain at the same level of the sixties (in fact it is slowly declining), this implies that the Japar,ese require- ments of iron ore in 1975 will be about 140-150 million tons. If India succeeds in maintaining her share of the Japanese market at the current level, her exports of iron ore to Japan could increase by 11.5-12% p.a., reaching a level of about 22 million tons at the end of the-Fourth Plan and of 27-29 million tons by 1975. Some Tentative Estimates 56. Assuming that the amount of exports to Eastern Europe will remain constant at the current level (2.2 million tons) and that the exports to Western Europe will increase, as envisaged, from 0.5 to 2.0 million tons, it follows that, under the most favorable conditions, Indian exports of iron ore cannot be expected to be more than 26-27 million tons by 1973/7Y/. It must be emphasized that this forecast is conditional upon the fulfillment of the conditions mentioned above. 57. According to the EEC forecast, the total world requirements of iron ore are likely to increase less than the total production capacity until 1975, while the trend could be reversed during the late seventies. Accordingly, there should be a strong probability of a general decline in prices at least until 1975. The recent development of the Japanese market seem to indicate that this forecast is somewhat too pessimistic, even considering the substantial increase in Australia export potentialities. At present, the odds seem to be in favour of the stability of f.o.b. prices, at least in the near future. The outcome of the "battle of freights" still being uncertain, it seems extremely difficult to forecast the future developments of cif prices. 58. Provided that the f.o.b. prices remain roughly constant, the total value of Indian exports of iron ore should increase from 880 million rupees ($117 million) in 1968/69 to about 1.400 million rupees ($188 million) in 1973/74, i.e. at an average rate of growth of about 10% p.a. While this rate falls short of the rate of increase projected in the Fourth Plan (17% p.a.), it is still higher than the long term trend envisaged for the period 1968/69 to 1980/81.1/ Y This estimate is consistent with those contained in USAID projections, both being 4 million less than the level indicated in the Fourth Plan. Y Fourth Five Year Plan 1969-74, p. 43. RESTRICTED Report No. SA - 21a INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOMMENT ASSOCIATION EXPORTS OF CASHEW KERNELS INDIA May 27, 1971 South Asia Department INDIA EXPORTS OF CASHEW KERNELS TABLE OF CONTENTS Page SUMMARY AND CONCLUSIONS i I. SALIENT FEATURES OF CASHEW PRODUCTION AND PROCESSING . . 1 II. LOCAL PRODUCTION OF RAW NUTS . . . . . . .. ...... 2 III. MAIN CASHEW NUT PRODUCING COUNTRIES . . . . . . . . . . 4 IV. FUTURE SUPPLY . . . . . . . . . . . . . . . . . . . . . 6 V. MECHANICAL AND HAND PROCESSING . . . . . . . . . . 9 VI. WORLD MARKET FOR CASHEW . . . ............. 11 VII. FUTURE INDIAN EXPORTS .... . . . . ...........*... . 14 VIII. EXPORTS OF CASHEW NUT SHELL LIQUID (CNSL) . . . . . . . 16 ANNEXES TABLE I. Imports of Cashew KernelI II. Imports of Cashew Nuts into the USA III. Estimated Consumnption of Cashew IV. Edible Nut Kernel Prices V. Comparative Increase in Prices and Production for Principal Edible Nuts. VI. World Production of Principal Edible Nuts. VII. Tree Nuts: Commercial Production in Specified Countries VIII. World Almond Crop IX. Tree Nuts: Supply and Distribution - U.S.A. 1954-68. X. Exports of Cashew Kernels from India This report is based on the findings of a mission which visited India and European cities in June/July, 1970, composed of Messrs. Christian Ladonne and Alberto de Capitani. -2.- INDIA EXPORTS OF CASHEW KENS SUMMARY AND CONCLUSIONS 1. A few years ago, the cashew industry in India, which is said to employ some 100,000 workers, enjoyed a near monopoly in the processing of raw cashew nuts into finished kernels. About two-thirds of these raw nut requirements were met by imports, mainly from Tanzania and Mozambique. During the past two years, gross export earnings averaged $75 million, but the net foreign exchange was about half this amount, since the added value on imported raw nuts is around 35 percent. The two main export markets are the U.S.A.; over 50 percent in 1965 and about 37 percent in 1969, and the U.S.S.R.; 24 percent in 1965 and 42 percent in 1969. 2. However, following the building up in East Africa of its own processing facilities, India's relative importance as a processor has decreased from 95 percent in 1960 to 78 percent in 1968 and her main sources of supply of raw cashews are now being threatened: East African producing countries have, indeed, ambitious plans to process, as quickly as possible, their entire production of raw nuts through mechanical methods while, at the same time, the growth of Indian production of raw cashew will probably not be more than marginal in the next few years. 3. It is probable that by 1975, export of raw nuts from East Africa to India will decrease somewhat from their present level and at the end of the present decade, it is likely that East African countries will process their own production themselves; in a few years' time, India will have then to rely solely on her own local production. It is therefore extremely urgent for India to take necessary steps now to increase her own production. 4&. Forecasts are indeed extremely difficult to make. Nevertheless, it appears that, by and large, the future world demand for cashew nuts and for other nuts would easily acconmmodate a substantial increase of cashew output, from both Africa and India, without affecting the profit- ability of the cashew industry in producing countries. NDIA I. SALIENT FEATURES OF CASHEWP PRODUCTION AND PROCESSING 1. The cashew tree flourishes in even the poorest of soils in wasteland and forest, and cashew has, therefore, the advantage of being grown on marginal lands which otherwise would lie fallow. It has the added advantage of acting as a good binder in soil conservation measures. As a matter of fact, the cashew tree which originally came from Brazil, was introduced into India by Portuguese traders in the 16th century for the purpose of checking erosion on the coasts. Its introduction and history in East Africa are similar. The cashew tree begins to bear fruit after 4 to 5 years of growth and attains maximum fertility only after 12 years. The fruit of the cashew tree consists of the nut with a "false" fruit; yet it is extremely difficult to use the whole fruit commercially as the "apple", which could be used for jam making or fruit juices, ripens before the nut. Therefore, only the nuts, which consist of the following elements, are commercially utilized: Kernel - about 22/25 percent by weight Cashew Nut Shell Liquid - about 24 percent Shell - about 50 percent Skin, - about 2 percent. 2. At present, cashew is treated as a wrasteland crop and it receives generally no or very little cultural or protective treatment. Therefore the yield rate of nuts per tree is very low: 1.5 lbs. to 4.5 lbs. in Goa and 20 lbs. in.Kerala; in East Africa, average yields are said to be between 10 lbs. and 15 lbs. However, yields of about 100 lbs. and over per tree under' plantation cultivation have not been unheard of; but plantaticn cultivation of cashew is rare. Ordinarily, the cashew with nuts attached fall from the trees when ripe and are gathered from the ground, the nuts removed by hand and the "apples", for the most part, discarded. 3. Cashew is a typical, well adapted and profitable smallholder crop that requires little care throughout the year with the exception of the two months harvesting period. As fruits get spoiled when left on humid ground for more than two days, a big labor force is required to harvest each tree at short intervals. It is precisely this seasonal labor force requirement that makes it difficult to run large plantations or industrial blocs eccnomically. (A plantation of 1,000 hectares would require some 25,000 man-days within a two months' period). This labor force problem applies however more in Africa than in India, where the labor force is plentiful. Moreover, cashew harvesting seasons in India take place between the Kharif and Rabi season, when demand for agricultural labor is law. The return on the farm investment of a plantation in Africa is about 20 percent. A lot depends, however, on the material plantations are established with, the method of planting and the care the young plants get. For instance, reforestation programs with cashew trees are only advocated for timber purposes, since their nut yield is negligible, as the following figures illustrate: - 2 - Ordinary cashew plantation, selected seed, at maturity - 2,000 Kg/ha. Grafted, well looked after experimental plantation at miturity . . . . . . . . . . . . . . . . . . . . . - 4,300 Kg/ha. Reforestation program with cashew (Dahomey) . . . . . - 80 Kg/ha. 4. Hand-processing of cashew nuts is a highly unpleasant job. In India, the nuts are roasted in drums (Goa) or in oil baths (Kerala). Generaely, most of the caustic oil in the shell is dispelled by the heat. The whole process is intensely disagreeable due to spurting oil and the fumes which are irritating to the eyes, nose, throat and skin. Further, after roasting the nuts must be rubbed with sand or ashes to remove residual oil that would otherwise be harmful to the hands of the shellers. Shelling is almost entirely a hand operation. It is usually done on stones embedded in the ground and by squatting women using wooden mallets. It is customary to dip the hands frequently in lime, ash, linseed oil or castor oil to protect them from any trace of shell oil remaining, especially after the more primi- tive methods of roasting. 5. In Africa the principal deterrent to processing has been the difficulty of recruiting manpower for such unpopular work and also the conviction that African countries could not successfully compete with India where the processing is performed by plentiful, low-cost and skilled female labor. However, the higher price for exports of shelled nuts after 1962 stimulated efforts to discover effective mechanical decortication techniques. Portugal made first an unsuccessful attempt; the Italian company, Oltremare, came afterwards with machinery of much better performance; more recently a Japanese firm had successfully experimented machinery using a freezing process, to facilitate the shelling and peeling of the cashew nuts. II. LOCAL PRODUCTION OF RAW NUTS 6. In India, cashew trees are to be found mostly in wasteland, under private, communal or public property, or in departmental forests; organized plantations are very rare. In most cases, harvesting of nuts is farmed out to private collectors. Next to nothing is known about the acreage under cultivation; estimates of production are also divergent. For example, the Fourth Five Year Plan Draft (1969/74) estimated the present production at 160,000 tons, while the final version of the Plan revised is downwards to 131,000 tons. These figures are most likely inflated and this is extremely misleading, because it gives the impression that the problem is more on the collection side than on the production side. For all practical purposes, the local production of raw cashew available for processing is about 70,000 to 80,000 tons a year 1/, the Indian traders think that most of the production is collected; they consider that perhaps 10,000 to 20,000 tons might remain unharvested or be directly consumed. 1/ These estimates from the Indian Trade are consistent with those of Gill an. Duffus and of the International Trade Center (UNCTAD-GATT) study on "Cashe, Marketing". The London Company, Gill and Duffus Ltd. is one of the most prominent firms in the world marketing edible nuts. 7. For the last ten years, local supply of raw cashew to the processing units has remained more or less stagnant at about 70,000 to 80,000 tons a year, thus meeting about one-third of.the total requirement of the cashew industry in India. Since the beginning of the Third Plan, the GOI has been anxious to develop lasal production, and schemes have been initiated to encourage small farmers to cultivate cashew trees along with their other crops and seeds have been provided to them free of cost. In general, however, the results have been extremely poor; farmers have been reluctant to cultivate cashew because the tree requires 4 to 5 years of growth before it begins to bear fruit and attains maximum fertility only after 12 years of growth. 8. The Fourth Plan is seeking to achieve 76,000 additional tons of production through various developmental measures both in the State and Central sectors of the Plan - "The State Sector of the Plan contains pro- visions for bringing new areas under cashew. The target is 207,200 hectares. This will include 91,600 hectares under departmental plantation. In the Central Sector, prime importance has been given to organizing a cashew package program. The components of this program include organization of about 1,500 demonstration plants; coverage of 24,768 hectares of non- departmental plantations and 12,328 hectares of departmental plantations by plant protection measures. It is also proposed to propagate and distribute high-yielding planting material. About 275,000 cashew airlayers will be sought to be produced and distributed every year in Kerala, Mysore, Andhra Pradesh and the Union Territory of Goa" (Fourth Five Year Plan, page 171, paragraph 7.161). However, it must, be remembered that even if these programs were successfully implemented during the Fourth Plan period, the corresponding increase in output will take place gradually, not before the 1975/85 period. Considering what was probably achieved during the 60's in terms of increases in acreage and in yield, no more than a marginal increase of output over the present level of 70,000 to 80,000 tons can be expected during the Fourth Plan period. 9. The Plan made no provision for private investments in the field of cashew nut development. However, there is at least one proposal by Peirce Leslie 1/. For the past 18 months, this firm has been trying to obtain the agreement of the Government of Orissa to the establishment of a 100,000 hectares plantation in forests belonging to the State government. If accepted, it will take 10 years for this scheme to be implemented: each year 10,000 hectares will be planted. Total investment would amount to about 18 crores or US$24 million (scarcely any foreign exchange would be involved). The output of the project, when fully mature, would be about 70,000 tons of raw cashew a year, i.e. equal to the total present Indian production made available to the processing plants. This firm does not intend to introduce mechanical shelling and peeling facilities. It does not seem at present that this scheme will be sanctioned. Nevertheless, Peirce Leslie has been able to be given lease of 2,000 acres in forests (totalling 20,000 acres) belonging to the Jaganath Temple in Orissa. lJ The following figures are quoted from memory. - 4 - III. MAIN CASHEW NUT PRODUCING COUNTRIES 10. As stated earlier, India has to import about two-thirds of her requirements of cashew nuts but in some years, as in 1968 and 1969 (season October/September), India has imported more than three-fourths of her needs. For the past nine years the situation has been as follows 1/: Sources of Raw Cashew for Processing (in 000 tons) Estimated Local Production Imports (3)/(1) Year Local Processing for Processing for Processing as % (1) (2) (3) (4O 1961 194.8 66.0 128.8 66 1962 180.9 66.0- 114.9 63 1963 231.7 76.2 155.5 67 1964 267.2 81.3 185.9 70 1965 245.4 82.0 163.4 66 1966 218.6 65.0 156.6 70 1967 208.4 70.0 138.4 66 1968 238.3 60.0 178.3 75 1969 '277.6 70.0 207.6 75 11. The heavy reliance on imports is of course dangerous, as is ex- plained later on, but it has at least one advantage: as the harvest periods in East Africa fall in successive months, India can minimize inventory costs and storage damage. The harvest seasons in some selected countries are as follows: India - March to May, with a small crop in October to November Mozambique - November to January Tanzania and Kenya - October to November 12. For India, the two main sources of imports of raw cashews are Mozambique (.7.2.000 tons in..1969/70) and Tanzania (79,000 tons in 1969/70), and to a lesser extent Kenya (11,000 tons in 1969/70). 1J Sources: Edible Nut Statistics, Gill and Duffus (March 1970); ITC (UNCTAD-GATT) Cashew Marketing (Geneva, 1968); Indian Foreign Trade Statistics. - 5 - 13. In Mozambique, the cashew exports have been as follows (in tons) 1/: Apparent Production Year Raw Seeds Kernels 2/ of Raw Seeds 1949 42,200 neg 42,200 1960 55,950 1,350 62,025 1961 83,250 1,050 87,575 1962 79,250 1,850 87,575 1963 117,350 2,650 129,275 1964 122,350 3,L450 137,875 1965 97,100 3,950 144,875 1966 76,000 5,650 101,425 1967 t53,300 7,950 91,075 1968 130,090 10,200 175,075 1969 n.a. n.a. 140,000 14. Commercial exploitation of cashew trees, which were introduced into Mozambique in the sixteenth century,started in the 1920's when India began importing cashew nuts. Almost 90 percent of the cashew nut harvest is accounted for by small peasants, most of whom gather fallen nuts from uncultivatbed trees. 3/ Cashew trees are also grown by non-African farmers, mainly on smrall and medium sized farms along with other crops. Production by large agriceltural companies is still limited. 15. In Tanzania, the situation has been the following (in tons) 1/: Apparent Production Year Raw Seeds Kernels of Raw Seeds 1949 3,550 nil 3,550 1960 36,700 nil 36,200 1961 39,950 nil 39,950 1962 59,000 nil 59,000 1963 42,550 nil 42,550 196k 55,800 50 56,000 1965 63,650 50 63,900 1966 71,100 575 73,200 1967 69,800 1,450 76,325 1968 78,400 1,350 84,425 1969 n.a. n.a. 105,000 As seen in the above table, output has increased tremendously since 1949. During the 1960's the rate of growth averaged 12 percent a year. g Source: Edible Nut Statistics, Gill and Duffus, March 1970. 2/ Roughly 4-1/2 tons of raws are required per ton of kernels. 2/ "Area Handbook for Mozambique"; study published by the American University, Washington, D.C. Foreign Area Studies (February 1969). - 6 - 16. In Kenya, increases in production were also spectacular: from less than 1,000 tons a year in 1955 to over 11,000 in 1969. There was no process- ing of raw seeds in Kenya up to 1967. Brazil is another important producer: 10,000 tons in 1961 and 20,000 tons in 1969. All the production of raw seeds is processed in the country through semi-mechanical methods. Other countries, like Ivory Coast, Dahomey Republic and Madagascar are marginal producers (less than 2,000 tons altogether), which export their output to India. IV. FUTURE SUPPLY 2/ 17. The State Trading Corporation (STC) has recently been asked by the Goverrnment of India to take over the import of cashew. One of the reasons behind this take over is that individual Indian importers of raw cashew were at a considerable disadvantage in dealing with exporting countries, parti- cularly Tanzania and Kenya which have Government agencies doing the sole selling. During 1969/70, there were complaints regarding bad quality of nuts supplied by the Tanzanian and Kenyan Boards. Claims for compensation have not been honored by those Boards and as a result, cashew imports stopped totally for a period of four months last year. 18. On September 1, 1970, the Cashew Corporation of India, a wholly- owned subsidiary of the STC was set up for the purpose of importing raw cashew nuts'. Indian authorities expect that this new government agency will improve the bargaining position of India; ensure a smoother flow of imported nuts; and thus minimize disturbances to the industry and to exports. 19. The pricing and distribution policy will be determined by the Cashew Corporation in consultation with the Ministry of Foreign Trade. The headquarters will be in Cochin. The Board of Directors will have repre- sentatives from Ministries/Departments and will also include representatives of the Government of Kerala and of the Cashew Export Promotion Council. In addition, there will also be Advisory Committees where representation will be given to the trade and industry. The authorized capital of the Corporation is Rs 20 million and the issued capital of the Corporation, which has been wholly subscribed by the STC, is Rs 5 million. The present policy of the Government is that the Cashew Corporation will distribute the raw nuts directly to the actual user. v/ Forecasts of future production of raw cashew in India and Africa rely on extremely weak statistical evidence. Given the characteristics of cashew cultivation, very little is known about present acreage and yields or about past and future investments. Estimates of future output in Section IV are based on Governmentst forecasts and corrected by trade's "feelings" and "guesstimates" and by other sources (Research Institutes, Inter- national Organizations, etc.). 20. Importers' feelings in the US and UK about the STC's take-over are mixed; some of them expressed the view that the move will accentuate the trend towards more processing by African countries; they, however, produced no evidence to back such an opinion. Other US and UK importers feel that the take-over by STO of imports is only the prelude to the take-over of exports and expressed some misgivings at such a prospect. If this second move were to materialize, it would be appropriate for the STC, or the Cashew Corporation of India, to dispell the fears of importers. 21. For the time being, and as mentioned earlier (see Section II), Indian processors cannot rely on more local supplies. Therefore, to tenta- tively assess Indian export prospects, it is necessary to review the pro- duction trends in countries which provide India with part of her raw nut supply and to try to determine the likely processing capacities these countries are going to build up in the future. Tanzania 22. Output of-raw cashew is expected to increase by over 10 percent a year from 78,000 tons 1/ in 1968 to 136,000 tons in 1974; on the other hand, processing capacities, which were of the order of about 10,000 tons a year in 1968,are assumed now to be of about 30,000 tons and might be expanded to 70,000 in l974. Whether this expansion of processing capacities will take place as planned is still uncertain. Prospective foreign investors are, indeed, apparently not too happy with numerous-governmental interferences and controls. Furthermore, they are afraid of future government policy regarding nationalization of foreign investments and of what they assess to be the growing influence of the Chinese. However, on the whole it appears that around 1975 it is possible that an export surplus comparable to the present level would still be available for the Indian processors. Obviously, it is impossible to forecast with any accuracy what will be the development of processing capacities in Tanzania during the second half of the present decade; nevertheless, it would be wise for India to expect a significant decline in the Tanzanian export surpluses of raw nuts during this period. Mozambique 23. During the last decade production has risen dramatically but it must be noted that, in contrast with Tanzania, yearly fluctuations in Mozambique are particularly wide, because this country is very often affected by cyclones. This increase in output took place as a result of the efforts of previous Governments to promote the crop. Output is expected to continue to increase due to past investments by private plantations and from the increasing age of immature trees. According to official estimates, output is expected to rise from 180,000 tons in 1968 to 250,000 to 300,000 in 1975 and thereafter to remain more or less even. 1p Economic Report on Tanzania (SA-lla, March 1970). The figures quoted by the Economic Report are somewhat lawer than those estimated by Gill and Duffus.,Ltd. -8- 24. It has also been the definite policy of the authorities to build up sufficient capacities to process all the crop through large-scale mechanical methods. Reports from official sources 1/ indicate that by 1968 the cashew processing industry would be capable of absorbing more than the total crop of cashew nuts. In fact, in 1968, against a total crop of 175,000 tons, 50,000 tons only have been processed in Mozambique: probably this can be partly explained by the fact that it takes some time before a processing unit starts working at full capacity, but mostly because foreign investors hesitate to invest in Mozambique despite the incentives provided to them by the Government. 25. Under the existing Government policy no export permits for raw nuts are given until the requirements of the local processing plants have been satisfied. These factories buy at Governmert rates, fixed annually, which normally are much below export prices The traders on the other hand hold back as much as possible and try to export their stock later. The fact remains that factories are thus guaranteed their raw product at a good price which together with other tax incentives is supposed to attract investment for new installations. The Government itself is not directly involved in the manufacturing process. 26. Due to the present political situation, however, these measures have not attracted as much foreign capital as expected. Nevertheless, pro- cessing facilities increased from 15,000 tons of raw cashew in 1964 to about 60,000 tons in 1969: this increase is substantial, but far behind the Government's target of 200,000 tons in 1968. This shortfall is mostly due to the reluctance of international private finance to invest in Mozambique, considering the present political situation. A factory is written off within five or six years of initial investment, but to some financial quarters this relatively short period appears still too long and they behave cautiously. Nevertheless, British and South African interests have already invested in Mozambique and apparently intend to do so in the near future, partly, especially in the case of UK investors, through reinvestments from accumulated earnings of companies operating already in Mozambique and Portugal. Local and Portuguese interests are also partici- pating in these processing ventures. 27.- Unless Mozambique is able to attract the needed capital for new investments (especially from South Africa) it is unlikely that the country would be in a position to process its entire production in 1975; common feeling among the trade is, however, that,other things being equal, processing capacities might amount to 125,000/150,000 tons of raw cashew a year in 1975, i.e. between two-fifths and one-half of the expected crop. In other words, this means that if these "guesstimates" regarding output and building up of processing facilities prove to be more or less correct, 2/ Op. cit. "Area Handbook for Mozambique" page 231. - 9 - export surplus to Indian processors would remain at about their present level (100 to 130,000 tons a year). Nevertheless it must be pointed out, that due to recurrent cyclones production fluctuations of the order of 40 to 50 percent are not unknown. In the past, such climatic accidents meant that Indian supply from Mozambique decreased by the same percentage; in the near future, it would mean that supply from Mozambique would almost completely stop, because Mozambique would first feed its own processing plants, leaving no exportable surpluses. 28. In 1967, Kenya had plans to process all its crop by 1971; latest trade figures showed that these have not as yet materialized. However, it can be reasonably expected that it may do so very shortly. Production of raw cashew is relatively small (about 12,000 tons) and the setting up of two medium-sized processing units of 6,000 tons each, involving a total investment of the order of $2 to $2.5 million would completely cut off exports to India. 29. Very little information regarding development of cashew cultivation in West Africa is available. Ivory Coast, Dahomey, Cameroon and Togo have suitable climatic conditions for growing cashew and these countries are showing interest in developing this line of production, which is still marginal. It is, however, obvious that these countries would develop their own processing facilities as soon as the size of the crop allows it: at the present level of prices, the setting up of a unit processing 3,000 tons of raw nuts a year makes an economic proposal and involves an investment of a little over $0.5 million. 30. To sum up, it appears that by 1975 Indian supply of raw cashew from Tanzania will remain at about its present level, while supply from Kenya might dry up completely. Under normal climatic conditions, supply from Mozambique might be comparable to the present one, but climatic accidents might substantially cut its size. By and large, it is therefore probable that by 1975 India must expect some decline in her supply from East Africa. Furthermore, it must be realized that, whatever the political problems African countries are facing, they will sooner or later process themselves their entire output. Therefore it would be realistic, or at least prudent, for India not to rely on imported raw nuts for feeding her own processing industry after the end of the present decade. V. MECHANICAL AND HAND PROCESSING 31. According to the Annual Survey of Industry, 1965, the number of persons employed in India in the processing of cashew was of the order of 96,000 1/, out of which 84,000 were women. For an output of roughly Rs 300 miUion, fixed capital was only Rs U million, while the annual v EThe Indian Trade estimates that the Cashew Industry provides jobs for 200,000 to 250,000 persons a year. - 10 - payroll was about Rs 50 million. In 1965 the value added in the 196 factories covered by the ASI was over Rs 72 million, two-thirds of which originated from the labor. For each working day (241 in a year), workers earned Rs 2; each worker processed 2.5 tons of raw cashew per year. 32. In East Africa, investment for a processing unit 2 of 3,000 tons of raw nuts a year amounts to about half-a-million dollars; for 12,000 tons, it is about US$1.4 million. No precise information regarding salaries paid to African workers is available, but they are thought to be much higher than salaries paid to Indian workers. On an average, each worker processes about 10 tons of raw cashew a year. 33. According to the European trade, hand processing in India is much more profitable than mechanical processing in Africa for several reasons. Capital depreciation costs are high in Africa and during the peeling process many more kernels are degraded as a result of mechanical processing. It is estimated that through hand processing at least 60 percent of nuts are produced as "whole", while through mechanical processing, this proportion is not higher than 45/55 percent and in some units as low as 25 percent. The price differential between "whole" and "large white pieces" is important: during the first quarter of 1970 "Count 320" was quoted at 76 cents per pound in New York, while "Large White Pieces" was quoted at 38 cents per pound, only. 34. .Nevertheless, with the prevailing world market prices for cashew, processing of cashew through mechanical methods appears to be profitable; particularly in Mozambique, where processors get their raw materials at two- thirds of the price paid by Indian processors (although in Tanzania there is no special scheme to help local processors, who pay for their raw materials only about 12 percent 2/ less than the Indian processors). The European trade is not sure that, for the time being, investment in mechanical equipment in Tanzania would prove to be profitable; on the other hand, and other things being equal, investment in a factory in Mozambique is expected to be written off within 6 years. 35. In terms of profitability, Indian processors have a substantial advantage over their African counterparts and it is obvious that for the time being India must continue to rely on traditional methods. Nevertheless, even if mechanical processing in East Africa appears to be less profitable than hand processing in India, it is here to stay and to expand further. First, because it is the deliberate policy of the African authorities to expand mechanical processing as quickly as possible to the whole crop in their respective countries and, secondly, because mechanical methods will, no doubt, be further perfected, through new technical improvements. It might even happen that after some time (say about 5 to 10 years or more) mechanical processing could become cheaper than hand processing; at this stage, India would eventually have to shift to mechanical processing. But for the time being, such a move would be extremely premature and unnecessarily costly. 2, FuIly automatic. y/ i.e., the cost of the freight from East Africa to Cochin of raws. U11 - VI. WORLD MARKET FOR CASHEW 36. Consumption 1/ of cashew rose rapidly from 16,000 tons in 1946 to 74,000 tons in 1969 #/. Nevertheless, consumption by Western countries, i.e. excluding the USSR and the German Democratic Republic (GDR), increased from 16,000 tons in 1946 to only 35,000 in 1958 and 47,000 in 1969. The main consuming country is the USA, whose consumption increased from 13,000 tons in 1946 to 37,000 tons in 1969. However, after having quickly increased between 1946 and 1954, consumption remained stagnant from 1954 onwards at about 30,000 tons a year up to 1966. During the last three years, consumption increased again: average consumption between 1967 to 1969 and 1963 to 1966 increased by 23 percent in terms of volume. On the other hand, UK's consumption remained relatively even during the last 20 years. Increases in consumption took place, especially during the 60's, in Australia, Canada and The Netherlands. Other EEC countries show no clear consumption trend and are still very small per capita consumers. / 37. However, the most spectacular increase in consumption materialized in the USSR: from 5,000 tons in 1962 to 14,000 in 1966 and 26,000 in 1969. The GDR is the world's largest importer per capita. These two countries may re-export a small part of their imports to COMECON countries but we found absolutely no evidence of re-exports to Western countries. 38. Price development of cashew has been favorable as shown in the table below: Prices of Cashew Kernels 4/ (shilling per cwt., C.& F., U.K.) 1956 January 380 1964 January 405 July 375 July 515 1957 January 410 1965 January 445 July 384 July 490 1958 January 350 1966 January 465 July 384 July- 550 1959 January 325 1967 January 456 July 370 July 495 1960 January 392 1968 January 605 (505 July 420 July 640 (544 1/ Apparent consumption, i.e. equal to imports in developed countries. 2/ See Table I in Annex. v/ See Table III in Annex Source: Gill and Duffus. Prices mentioned apply to "Count 450", but prices of other categories of kernels have followed a similar, if less marked trend. Figures in brackets are adjusted to take into account the L devaluation of 1967. - 12 - Prices of Cashew Kernels 4/ (contiaued) (shilling per cwt., C. & F., U.K.) 1961 January 395 1969 January 630 (536) July 395 July 600 (510) 1962 JanVLary 330 1970 January 665 (565) July 355 1963 January 320 July 335 39. Prior to 1962, prices of cashew remained more or less stagnant; since then, prices of "Count 450" increased by about 60 percent, while prices of all kinds of grades of cashew increased by more than 40 percent: not many tropical commodities can claim such a distinction. Obviously, this means that, at present, supply of cashew lies behind demand. 40. But the cashew economy cannot be isolated from the economy of other nuts, like almonds, walnuts and hazelnuts 1/. Prices of all these nuts follow about the same trend Z/, but their price level reflects, however, their relative scarcity. Table V in the Annex shows the comparative increase in prices and production for principal edible nuts: for about an equivalent increase in production, prices of almonds and walnuts increased,respectively, by 23 percent and 41 percent during the period 1966/69 compared to the period 1961/65. This price increase differential can be explained mostly by the fact that consumption of walnuts, especially on special occasions, like Christmas, has grown quicker than consumption of other nuts, without encountering important competition from other nuts. V 41. On the other hand, the price development of hazelnuts and cashews was quite consistent with those of almonds. Production of hazelnuts increased by 20 percent while prices increased by only 15 percent during the 1966/69 period over the 1961/65 period; available cashew nut production (i.e. total exports minus exports to U.S.S.R. and East Germany) did not increase in the Western markets, and therefore prices increased by 41 percent. The convergent trend of prices, consistent with the relative supply and demand situation of almonds, hazelnuts and cashew nuts, reflects the fact that these three nuts are substitutable in their end-uses. 1/ The peanut is also a popular nut, but its main utilization is for oil and therefore its price is determined by factors different from those affecting cashews, almonds, etc. 2/ See Table IV in Annex. y/ Despite the fact that no behavioral study has ever been made on this subject, it is probable that demand for unshelled walnuts is deeply rooted in old aged tradition, chiefly in Europe. Furthermore, production of walnuts in- creased by only 1.3 percent between 1946 and 1969. - 13 - 42. In the U.S. market, almonds are used for confectionery and baking and as solid (for cocktail) nuts, while cashew nuts are, for the time being, consumed only as cocktail nuts. When the price differential between almonds and cashew nuts changes, composition of nut-mix is adjusted accordingly 1/; there is little demand for hazelnuts (or filberts) in the U.S. In Europe, consumption of cashew, chiefly as solid nuts, is limited and the European market consumes mostly hazelnuts, and to a lesser extent almonds for confectionery and baking purposes and also as solid nut. So far no market study has been made to try to explain this low per capita consumption of cashew in Continental Europe. Probably the product, which has never benefited from promotion campaigns, is little known and its high price limits its consumption to high income groups. It is therefore possible that with income increase and some promotional efforts, demand for cashew would increase in Europe. There is no evidence however to help us to formulate a guess regard- ing the magnitude of this increase. Would European - and Japanese - per capita demand equal the present U.S. per capita consumption when per capita income in Europe reaches the present U.S. income? Or would this demand be different because the market would develop a different taste towards cashew? However, we think that consumption of cashew, as solid nut, is probably bound to increase in the European market. 43. Nothing much is known about the future consumption in the U.S.S.R. and the G.D.R. No doubt past imports have created a relative scarcity in the Western market and this explains the sharp upward trend in prices of cashew for the past six years. It would probably be unrealistic to expect future demand to grow at a rate comparable with the one recorded in the recent past; on the other hand, it is unlikely that the U.S.S.R. would suddenly cut its imports of cashew. There is a genuine demand in this market and our assumption is that the U.S.S.R. would at least keep its imports at the present level, but more likely increase them. 44. In the Western market, cashew is exclusively consumed as solid nut and is not used in confectionery and baking probably due to its high price. But were the price differential between cashew and hazelnuts or almonds to change, there is every reason to believe that the confectionery industry would partly shift to cashew 3/. 45,, For the past 25 years production of edible nuts, excluding peanuts, increased by 3.2 percent / a year and price development shows that apparently supply lay behind demand. Growth of walnut production is expected to remain slow and prices are likely to increase further. LIcrease in output of almonds will probably be similar to the one recorded during the 60s (about 1.5 percent a year) i/. Increase in the output of hazelnuts is expected to be of J About 70 percent of cashew nuts in the U.S. are consumed in nut-mix (for cocktail purposes). 2/ In the G.D.R. cashew is mostly consumed in the confectionery and baking industry. 3/ See Table VI in Annex. According to available investment statistics, output of almonds is expected to increase by 10,000 tons every 5 years. It must also be pointed out that fluctuations of almond crops are wide because of early blooming of the tree (February/March). - 14 - the same magnitude as in the past, i.e. 3 to 4 percent a year, but cashew production is likely to increase sharply, by about 10 percent a year. By and large, world production of principal edible nuts could increase by 6 percent a year during the first half of the 70s, against 3 percent during the second half of the 60s. 46. This increase in supply could stop or decelerate general price increases of nuts, and particularly so in the case of cashew but, on the other hand, prices of almonds and walnuts might continue to increase because of their likely relative scarcity. However, it must be noted that this divergent trend in price development of almonds and cashew would be stopped when prices of cashew would be at a level where this nut could compete with almonds in the confectionery and baking industries. In other words, it is quite possible that the relative prices of almonds and cashew might develop unfavorably for cashew for some time. It is, however, impossible for cashew prices to behave in the long run differently from the prices of other nuts. After an adjustment period, the price of cashew would move along with prices of other nuts and there is very little likelihood that prices of nuts would fall from their present level given the reservoir of unfulfilled demand, especially in the European market, where total per capita consumption of all kinds of nuts is about half the present consumption in the U.S. Japan might also become an important market and the centrally planned markets might also continue to grow. The U.S. market should also continue to expand slowly following demographic growth and a slight increase in per capita consumption. 1/ 47. By and large, it is unlikely that an oversupply situation, which could depress prices to an unprofitable level, would emerge following increased production of cashew in Africa and in India, in case Indian investment programs for this crop materialize during the Fourth Plan period. One has every reason to believe that new investments to promote cashew crops in India would prove economical. India would thus be able to maximize her foreign exchange earnings to generate more income and to create more job opportunities without either depressing the world market for cashew or the world market for other edible nuts -VII. FUTURE INDIAN EXPORTS 48. It is in the obvious interest of India that she takes immediate steps to increase her production of raw cashew; and if India is successful in her attempt, it would not create a situation of overproduction for the commodity as a whole, as the world demand will probably be in a position to absorb the additional supply for both East Africa and India, even if prices could possibly come down from their present exceptionally high level. Some price declines will not necessarily jeopardize the profitability of the cashew industry, but will at the same time probably boost demand in consuming countries, especially among low income groups and in the confectionery and baking industry. lJ See Table II in Annex. - 15 - 49. The Fourth Plan strategy regarding the development of local produc- tion by putting emphasis on plantsations is probably right, as the previous approach consisting of encouraging small growers has more or less failed, as mentioned earlier. There is also no reason why private capital should not be encouraged to invest in this cashew program, even if it comes from a Larger or Large Industrial House, as these investments would be mostly export-oriented. However, to translate into concrete results the proposed strategy, the present institutional set-up would better be drastically changed. 50. For the time being, at least five all-India agencies are looking after the cashew nut industry and they do not work in close collaboration; what would probably be needed is one agency with large statutory powers which, within the frame of an integrated approach, can look after the different problems of the cashew industry: production, finance, processing, imports and exports. Nevertheless, as things stand at present, it would appear rather difficult to completely do away with the existing set-up, as adminis- trative organizations tend generally to perpetuate themselves. However, as the main priority in India is to increase the local production of cashew nuts, it would seem advisable that in each cashew growing State, a public sector Corporation be created independently from the Ministry of Agriculture, so as to allow such Corporation to be able to rely on public financing Institutions resources. 51. If there is a real will at the Government level and if the adminis- trative set-up is reorganized, it is possible to increase the local production of cashew nuts, as cashew trees, which are cultivated on poor soils in waste- lands and in forests, will not compete with existing crops. Finance will not necessarily be an insurmountable problem as long as the political and admin- istrative will is there. However, for the time being, not much is known about the ,nagnitude of the needed investments. 52. Barring that, exports would at best stagnate during the next four to five years and are bound to decline rapidly afterwards and many of the 100,000 workers employed by the cashew industry would face unemployment. The present juncture is favorable for the cashew industry: earning some $75 million of gross foreign exchange, the industry is for the time being in a position to attract the Government's interest and help. But, if nothing very substantial materializes in the coming years, exports will come down to a level where the industry might be considered as a "dying" one; having lost its momentum and part of its trained manpower, the industry would have lost its bargaining power to attract sufficient attention from the planners. Action has to be taken now, on an urgent basis: if not, India will have missed an opportunity to increase her exports and to create more jobs. - 16 _ VIII. EXPORTS OF CASHEW NUT SHELL LIQUID (CNSL) 53. An important by-product of cashew nut processing, the CNSL (cashew nut shell liquid), is an oil having many uses in the paint, chemical, plastic and allied industry. The CNSL's polymerising properties make it useful in these industries, and as a friction modifier it is important in the production of brake linings. There are said to be more than 400 patents based on CNSL. 54. In India, the production of CNSL is low compared with the quantity of shell processed, because many processors use the shell for roasting without extracting the liquid. The outflow of CNSL during the roasting is around 5-7 percent of liquid. If the shell is not used as fuel for the hot-bath process (in the mechanized plants in Tanzania, the oil bath is heated using fuel oil burners) and this same shell is further treated for extraction of its CNSL content, a total recovery of CNSL, equal to 20 percent of the raw nut weight, is practical. 55. The U.S. is the major market for CNSL, buying and consuming some 50-55 percent of world supplies in recent years. In 1963, some 24 percent of world market went to the U.K. and in 1965 shipments to that country were estimated at 38 percent. There is, however, some re-export from the U.K. of treated CNSL to Western European countries. Exports of CNSL to Japan from producing countries account for some 10-15 percent of world total. Markets where consumption of CNSL can be expected to increase are Western Europe and Australia. Eastern Europe is another prospective market where there are no direct shipments of CNSL from producing countries at present. 56. In 1964, CNSL prices reached a peak of more than U.S.$400 C&F, New York, but late in 1967 they started falling below $200. Average unit value f.o.b. of Indian export 1/, of CNSL has been as follows: U.S. Dollar Per Metric Ton 1962 200 1963 260 1964 308 1965 328 1966 267 1967 206 1968 165 1969 153 57. A future price level of between $150 and $180 is not an unrealistic assumption even with the present sharp increase in production. It should be noted, however, that as a result of oversupply, prices could well fall 1/ Source: "Cashew Marketing" and Cashew E.P.C. - 17 - temporarily below even this level. 58. India accounts now for about 55-60 percent of total CNSL world supply. Exports of CNSL from India 1/ have been the following: Q = Quantity in Metric Tons V = Value in Rs (000) 1967 1968 - 1969 Q V Q V Q V Japan 2,198 38.95 3,065 43.68 2,000 28.84 U.K. 4,453 65.27 5,020 63.09 3,540 41.74 U.S.A. 3,156 47.82 1,778 14.97 2,326 17.95 Total 10,102 156.56 10,266 127.58 8,,440 97.44 (incl.others) 1/ Source: D.G.C.I. and S., Calcutta. Table I IMPORTS OF CASE1W, KERNELS (Long Tons) Germany Germany Federal New United United Democratic Total Australia Belaiurn Canada France Republic Holland Zealand Sweden Kingdom States USSR Republic 19h6 -- 1,130 1,809 13,347 16,286 1947 -- 686 --- 3,799 14,168 18,653 3948 U 822 _ 3,186 15,496 19,515 1949 -- 9--- 1,642 16,362 18,953 1950 12 695 103 25 2,856 21,645 25,336 1951 60 939 89 1 4,316 22,546 27,951 - 952 11 1,019 37 49 19 7,575 18,814 27,524 3 1,214 40 74 13 6,995 21,227 29,566 '954 256 16 1.027 131 74 74 3,396 25,246 30,220 1955 568 43 1,123 284 78 25-2 3,158 29,640 35,146 -956 456 127 1,172 406 119 335 3,462 25,125 31,202 i957 640 64 1,I457 --- 116 189 3,060 26,070 31,596 1958 674 111 1,483 --- 132 219 2,674 29,807 4,800 39,g90 1959 55.7 105 1,341 199 78 202 2,224 28,283 4,000 36,989 1960 1,086 86 1,519 346 225 149 155 2,485 28,623 5,400 40,074 1961 1,199 109 1,732 1,145 282 163 133 3,265 26,281 3,900 59,009 1962 1,394 158 1,545 1,391 412 183 215 2,511 28,786- ,000 41,595 1963 1,523 146 1,862 1,46o 497 207 196 2,514 33,812 8,000 50,217 196h 1,898 117 1,760 1,305 568 204 199 3,413 31,031 10,900 51,395 1965 1,512 145 1,852 1,054 442 167 140 3,213 29,291 13,100 3,500 54, 416 1966 1,529 236 1,416 869 565 120 125 2,440 30,267 13,400 2,900 53,867 1967 2,163 201 1,913 506 957 645 108 145 2,704 32,523 12,400 2,400 56,665 1968 1,992 193 2,236 181 1,155 765 207 173 3,100 41,567 17,200 2,500 71,269 1969 2,260 170 2,250 885 1,437 928 167 160 2,519 37,350 25,300 2,100 73,626 1. Import figuras for Australia are not available Source: Gill and Duffus: Edible Nuts Statistics, March 1970. before 1954. 2. Dutch Import figures before 1952 are not avail- able. 3. Swedish Import figures before 1950 are not avail able. 4. Where a nil return is shown, indicated by a dasl, imports, if any, are under' half a ton. 5. Soma annual totals are adjusted. TABLE II IMPORTS OF CASH.d NUTS INTO THE USA Quantity - in thousand pounds Value - in million US dollars 1956 - 1969 1956 1957 1958 1959 1960 1961 1962 Quantity Value Quantity Value Quantity Value Quaniiay Value Quantity Value Quantity Value Quantity Value Brazil 387 0.02 Neg. Neg. Neg. Neg. 149 0.05 1,218 0.38 711 0.23 808 0.21 India 52,780 22.71 55,141 22.96 62,854 2b.07 60,331 23.53 59,084 25.98 53,682 23.62 59,559 23.61 Kenya( (( ((( ((((( (378 (0.15 (271 (0.11 (403 (0.1h (393 (0.12 (380 (0.15 (588 (0.21 (259 (0.08 Tanzania ( ( ( ( ( C ( ( ( ( ( Mozambique 1,hiO 0.67 2,587 1.08 1,846 0.69 1,939 0.10 2,128 0.88 1,638 0.69 3,428 1.14 TOTAL 56,278 24.03 58,396 24.32 66,770 25.42 63,351 24.63 64,338 28.28 58,870 25.70 64,481 25.21 (including others) UNIT VALUE 100 86 94 91 103 103 92 (1956=100) 1963 1961k 1965 1966 1967 1968 1969 Quantity Valu Quantity Value Quantity Value Quantity Value Quantity value Quantity Valuue Quatity 1969 Value Brazil 1,234 0.41 1,822 o.69 676 0.26 2,500 1.12 2,234 0.92. 5,546 2.67 8,159 3.60 India 42,635 16.42 62,671 30.61 56,614 30.19 53,700 30.83 56,oo4 29.45 65,402 38.41 53,710 31.76 Kenya ( C 212 0.09 342 0.14 109 0.04 318 0.11 324 0.15 177 0.09 ( 119 ( 0.01, Tanzania (-- -- -- -- 359 0.20 1,305 0.59 894 0.47 1,499 0.89 Mozambique 3,115 1.12 4,665 2.00 6.374 2.79 8.817 4.17 12,715 5.56 20,765 10.26 19.256 9.62 TOTAL 47,141 18.02 69,614 33.50 65,611 34.13 67,797 34.147 73,022 36.85 93,428 52.27 83,663 46.41 (including others) UNIT VAUIE 90 113 122 120 117 131 130 (1956-100) SOURCES: 1956-1963 - United] States Bureau of the Census. Report No. FT 110: United States Imports of Merchandise for Consumption, commodity by country of origin. 1964-1966 - FT 125: United States Imports of Merchandise for Consumption. 1967 - FT 21,6: United States Imports fcr Consumption and General Imports. 1968-1969 - FT 135: United States Imports, General w c: Consumption. Table III ESTIMATED CONSUMPTION OF CASHEWS Average Consumption 1962/66 average 1966/66 in Metric Tons per head in grams German Democratic Republic 3,472 217 U.S.A. 31,139 162 Australia 1,629. 147 Canada 1,714 89 U.K. 3,210 59 U.S.S.R. 10,532 46 Netherlands 512 42 Federal Republic of Germany 1,176 21 France 538 11 Japan 459 5 Italy 61 3 India 5,000 10 Brazil 10001 TOTAL (incl.others) 63,700 _ Source: "Cashew Marketing" (I.T.C.) TABLE IV EDIBLE NUT KERNEL PRICES Almonds Walnuts Hazelnuts Cashew (Italian Sweet Cleaned (French extra halves) (Turkish Kerassw-des) (Count 450) P.G.'s) (shilling per 50 kgs. Shillings per 50 kg. Shillings per cf; (shillings per cwt F.O.B.) F.O.B. gross for net C. and F. U.K. 0. and F. U.K.) 1959 366 514 309 360 1960 377 776 340 413 1961 373 587 431 376 1962 519 680 478 332 1963 555 608 450 357 1964 550 785 362 474 1965 536 761 379 463 1966 527 994 413 547 1967 537 855 425 470 1968 635 (530) 1050 (892) 532 (452) 630 (535) 1969 792 (673) 960 (816) 571 (486) 603 (513) Source: Corouted from Edible Nuts Statistics - Gill and Duffus. These yearly average prices have been derived from 24 semi-monthly figures per calendar year. Note: Figures in brackets are adjusted to take into account the ; devaluation of 1967. TABLE V CO'4PAR.-TIVE INCREASE IN PRICES AND PRODUCTION FOR PRINCIPAL EDIBILE, irUTS Almonds Walnuts Hazelnuts cashew Average Increase in Production + 9% 8% +20% +21% (no increase if exports to (1966/69) USSR and East Germany are (1961/65) excluded)l/ Average Increase in Price 2/ +23% +41% +15% +41, (1966/69) (1961/657 Source: Computed from Tables IV and VI. 1/ Estimat.es of cashew production have been based on export sales. 2/ No adjustment for the 1967 sterliAg devaluation has been made. TABLE VI WORLD PRODUCTION OF PRINCIPAL EDIBLE NUrS (Long tcris) Average Average Average Average Average Yearly 1946-1950 1951-1955 1956-1960 1961-1965 1966-1969 (5) as % Increase (1 (2) (3) (4) (5) f (1) in % Almonds 84.200 63.4oo 92.200 117.800 128.000 152 +2.1 (Shelled basis) Hazel Nuts 112.100 121.600 1411.00 178.600 214.200 191 +3.3 (Unshelled basis) Walnutsl/ 104.300 110.700 109.600 123.800 134.000 129 +1.3 (Unshelled basis) Cashew2/ (raw seeds apparent production) 118.000 132.000 170.000 255.000 310.000 262 +4.9 418.600 428.600 512.900 675.200 786.200 187 +3.2 Source: Estimates derived from Gill and Duffus Statistics 1/ Selected countries: France, Italy, Turkey, U.S.A. 2/ These estimates are based on sales of kernels from India, East Africa and Brazil. TABLE VII TREE NUTS: COMMERCIAL PRODUCTION IN SPECIFIED COUNTRIES, AVERAGE 1960-644, ANNUAL 1967 and 1968 (000 tons) Commodity and Country Average 1967 1968 1960-64 Almonds (shelled basis): Iran 6.6 6.0 7.0 Italy 35.1 43.0 50.0 Morocco 3.3 5.5 4.0 Portugal 3.4 6.0 5.0 Spain 30.8 30.0 45.0 Total 79.2 90.5 111.0 Brazilnuts (in the shell): Brazil 43.4 29.0 47.4 Filberts (in the shell): Italy 46.4 60.0 86.0 Spain 17.0 19.0 18.0 Turkey 114.8 75.0 145.0 Total 178.2 154.0 249.0 Walnuts (in the shell): France 28.6 27.0 24.0 Italy 24.9 25.0 17.0 Turkey 8.4 8.0 8.0 Yugoslavis 3.7 3.0 2.5 Total 65.6 63.0 51.5 Source: Agricultural Statistics 1969 (USDA). Table VIII WORLD AIIOND CROP - Shelled Basis (Long Tons) 1959/58 Ten -Year 1969 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 Average Estimate Italy 45,000 14,000 60,000 13,000 39,000 341,o00 35,000 37,500 38,000 40,000 35,600 20,000 Spain 25,000 28,000 35,000 18,000 27,000 34,00b 26,000 37,000 27,000 40,000 29,700 21,000 Portugal 4,000 3,000 5,000 3,000 2,000 3,000 4.oo000 1,000 6,ooo 4,500 3,600 2,000 I arocco 4,000 3,OO 5,000 3,000 3,000 6,ooo 6,500 6,500 5,000 5,ooo 4,700 2,500 Iran 9,0oo 5,000 8,000 12,000 6,000 6,500 7,000 2,500 6,ooo 6,000 6,800 5,000 U.S.A. 37,500 24,000 32,000 23,500 30,000 37,000 35,500 42,500 36,500 36,000 33,500 60,000 Others 5.000 5,000 6,000 4,000 6,ooo 8,000 6,000 6,000 6,ooo 8,000 6,000 -4,500 Total 129,500 82,000 151,000 76,500 113,000 128,500 120,000 133,000 124,500 139,500 119,900 115,000 Source: Edible Nut Statistics - Gill & Duffus, Ltd., London, England, March, 1970. o ^ _ . w n a ': < zz c ,> t.i. . . . . . . . . n 4 c vb "£S^~~~~~~~~~~ ;- i'. k- c-;ko ~. .5C- > O I e ~~MNI- Mg e i a~~~~~~~~~~~E a . -' - 'f i*;C o ~ ;> e v s t x i. Li T. ;v>n * '~v r .; ti e a W , . t @ . @ ., ............. c X c .r ir c C c_ TABLE X Exports of Cashew Kernels from India-/ Q = Quantity in Metric Tons V = Value in Rs. (000) 1965 1966 1967 1968 1969 Q ~ ~V Q V2 Q V Q V Q V Countries Australia 1,365 8,051 1,245 11,683 1,824 17,095 1,790 18,655 1,910 19,150 Canada 1,510 8,640 1,311 11,425 1,896 15,982 2,015 21,060 1,776 17,658 West Europe 5,072 24,854 4,199 29,528 4,918 37,651 4,791 41,261 4,605 38,684 of which U.K. 2,857 14,646 2,299 17,665 2,758 22,519 2,827 25,612 2,261 20,088 U.S.S.R. 13,315 73,536 13,5541 106,565 12,601 101,515 17,460 167,245 25,712 238,359 East Germany 3,585 14,880 2,973 16,704 2,449 16,661 2,510 16,982 2,156 15,023 U.S.A. 27,048 147,1416 23,346 183,000 26,419 224,723 29,359 283,516 23,323 225,269 Japan 535 2,773 416 3,343 423 3,693 421 4,1144 479 8,721 Total 53,793 287,586 48,616 376,373 52,256 431,721 60,491 574,195 62,678 585,479 incl. others 1/ Source: Indian Cashew, Export Promotion Council. 2/ Devaluation of the rupee took place in June 1966.