India’s High Internal
Marketing Costs Reduce Apple Demand
Maurice
Landes
Maurice R. Landes, USDA/ERS
Efforts to expand market access for
agricultural products typically focus on reducing tariffs
and other border measures that impede trade. In India
and other emerging markets, however, high internal marketing
costs and marketing margins—or returns to importers,
wholesalers, and retailers over and above their costs—can
also be an important barrier to trade.
Strong
income growth in India is projected to lead to continued
expansion of apple demand and imports, including imports
of U.S. apples. But high domestic prices of both domestic
and imported apples, compared with other Indian fruit,
are likely to limit demand growth among middle- and
lower-income consumers who make up most of India’s population.
Even though India’s 50-percent import tariff on apples
is one of the highest in the world, high marketing margins
account for the largest share—about half—of the consumer
price of both domestic and imported apples in India.
As a result, increased investment and competition in
the domestic supply chain is likely to be particularly
effective in boosting apple demand and imports.
Behind India’s high marketing margins
and costs is an array of factors related to the stage
of economic development typical of emerging markets.
The presence of relatively few importers in each of
India’s major markets and secretive bidding practices
common in markets for domestic and imported apples provide
an opportunity for traders to maintain high margins.
Fragmented supply chains—typically including four to
five intermediaries between the grower/importer and
the consumer—result in a compounding of margins. Also,
heavy regulation, high capital costs, and limited demand
for high-value goods have constrained private investment
in market infrastructure and the emergence of vertically
integrated marketing firms.
Risk and uncertainty faced by importers,
particularly regarding enforcement of nontariff import
regulations, may also contribute to importers’ demands
for higher margins. India eliminated quantitative restrictions
on apple imports in 1999 but imposed a 50-percent tariff
and nontariff measures, including phytosanitary, pesticide
residue, and food safety regulations. Some of India’s
requirements for apple imports, such as those pertaining
to waxing and chemical residues, differ from U.S. and
international standards. Although these regulations
appear to have had little effect on India’s apple trade
so far, uncertainty regarding the rules and their enforcement
could be disruptive and costly for traders.
Success in reducing India’s marketing
margins and its high tariff are likely to benefit U.S.
apple producers, as well as Indian producers and consumers.
U.S. apples have been highly competitive in the Indian
market on the basis of both price and quality, earning
about 31 percent of India’s import market during 1999-2004,
the largest share of any supplier.
Prospects
for India’s Emerging Apple Market, by
Satish Y. Deodhar, Maurice Landes, and Barry Krissoff,
FTS-319-01, USDA, Economic Research Service, January
2006.
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