Although India is the world’s top exporter of raw groundnuts, it exports very little of value-added processed groundnuts that offer higher margins
Forget the clichés and chestnuts that rather grossly undervalue peanuts. Before you arrive at a preconceived notion that this must be a product, which fetches, well, peanuts,here is the clincher – global propensity for Indian peanuts has provided a very fertile pasture for exports. In a nutshell, groundnuts have come to mean an export item worth hundreds of millions of dollars. So, The Dollar Business, zeroed in on one of India’s largest groundnut producing hubs – Anantapur in Andhra Pradesh. We found that we could do better. Actually, much better!
Satyapal Menon | June 2015 Issue | The Dollar Business
Traversing the territory of Anantapur (in Andhra Pradesh), one cannot not help being overwhelmed by a strong sense of consternation, with many villages reflecting impecunious state of livelihood. It is anything but what you expect of a nerve-centre contributing to a significant share of India’s groundnuts exports. Queries about the lack of affluence revealed that while farmers sowed, brokers reaped! While navigating the terrain, one also gets the feeling of being frozen in space, time and movement, with the landscape presenting a monotonous view of dry, arid, hilly spreads bereft of even a blade of grass, except for some cultivated stretches here and there. It does make one wonder, how would anything ever grow on such tough, unyielding topography?
Against odds
When the going gets tough, the tough get going. And Anantapur’s farmers have demonstrated their resilience in weathering the ills of climatic vagaries and soil incompatibility to transform and position this district as one of the top groundnut producing regions in the country. In Anantapur, groundnut is cultivated on an area of 7.5 lakh hectare – nearly 10% of India’s total area under groundnut cultivation – helping Andhra Pradesh become the third biggest groundnut producer, after Gujarat and Tamil Nadu. The pre-dominance of groundnut as an integral and crucial part of Anantapur’s economy and livelihood can be gauged from the fact that an exclusive Agriculture Research Station (ARS) has been established at Kadiri, located at a distance of about 95 km from Anantapur. The ARS has been instrumental in developing a plethora of customised drought and disease-resistant groundnut varieties, keeping in view production aspects and market demands.
The Kadiri series – the tag attributed to the location of its genesis – specifically K6, comprising juicy and big kernels, enjoys iconic status due to its immense popularity in both export and domestic markets. Its prominence is evident from a riveting bronze replica of it, positioned conspicuously at the ARS. “The Kadiri brands have become a preferred choice across the world, with several Indian states taking up its cultivation. Even China, which is one of the largest producers of groundnuts, have sourced them from India,” Dr. K. S. S. Naik, Principal Scientist (Groundnut), Agriculture Research Station, Kadiri, tells The Dollar Business. Hence, no wonder, Kadiri varieties constitute about 50% of India’s groundnut crop and 60% of the country’s groundnut exports.
Crocodile tears
Strangely, despite prolific production, pricing parameters and markets for groundnuts are barely structured. There are only few small time processing units in the district, which means hardly any direct exports takes place from here. Most of the milling and processing is done in Chelekere in Karnataka, from where groundnuts are channelled to export and domestic markets. “Traders here do not have the financial capacity to enter this business. So, traders, with deep pockets, from Tamil Nadu and Karnataka, procure the produce through local brokers,” K. Murugesan, CEO, Dharani, FaM Cooperative Ltd., a local cooperative body, explains to The Dollar Business. Not surprisingly, farmers in Anantapur resort to distress sales, notwithstanding the market demand. “Traders and brokers indulge in exploitative methods and deception like under-weighing and underpricing the produce,” Murugesan reveals. The pathetic plight of local farmers is symptomatic of a blight that has been plaguing the system with no remedies on offer from the establishment, except crocodile tears. But, anyway, the mindset of the bureaucracy and the ruling clique have always proved to be a very hard nut to crack. Questions Dr. Naik resentfully, “When manufacturers are allowed to fix a price on their products, why not farmers?”
The desperation of the farmers emanates from apprehensions and insecurities about the fate of their crop. While on one hand, the scarcity and unpredictability of monsoon spells doom and reduce the farmers to tears quite often, on the other hand, exporters laugh all the way to the bank. Such gross inequity is shocking, to put it euphemistically.
Bizarre
To substantiate this point, let us analyse the profit differential between farmers and exporters. The average per hectare groundnut output in Anantapur varies between 2 MT to 2.5 MT, depending on climatic and other factors. At the farm level, groundnuts are sold in standardised 42 kg bags, with the price tag on each bag hovering between Rs.1,500 and Rs.2,000, i.e. approximately Rs.35 to 48 per kg. But after processing and grading, the groundnuts are exported at FOB prices ranging between Rs.64 to Rs.80 per kg. Given that the per hectare investment on cropping, including all inputs, tractor hire and labour, is approximately Rs.25,000-30,000, means even at the higher yield of 2.5 MT per hectare and the higher price of Rs.47 per kg, a farmer earns about Rs.87,500 per hectare. On the other hand, an exporter, assuming he/she exports 2.5 MT, earns a profit of Rs.57,500 per hectare, after accounting for an average cost of Rs.10 involved in per kg processing of groundnut, by just being a facilitator! That a farmer’s expenses don’t include the cost of land, while an exporter also gets duty drawback of 1%, makes the scenario even more bizarre.
Same old story
The irony of India’s groundnut trade is that the country has ended up becoming an exporter of low-margin raw materials and not high margin value-added products. This, not only because we don’t have proper processing facilities, but also because the produce is not enough to cater to both the segments. In fact, it won’t be an exaggeration to say that not having proper processing facilities is also a function of inadequate production. But why don’t we produce enough groundnuts, despite being the World No.1 in area under cultivation? Simple. India’s per acre yield is one of the lowest in the world!
Despite such impediments, there is no reason why India can’t produce enough to satiate both global, as well as local demand. This, particularly since, there is increased focus on developing high yielding varieties in recent years. For example, Gujarat – the biggest producer, with a share of 33.3% – has recently developed a new variety – GJG-31 – that can improve the yield by 20x! Apart from this, many other varieties, with increased protein and sugar soluble content and size values, like the Kadiri series, are already making inroads into the market.
Sea of irony
Most of the global demand for groundnuts is from the confectionery and food processing industries. And since Indian groundnuts are high in protein content and low in oil content, they are a favourite in the international market, particularly since not many countries consume groundnut oil. Inexplicably though, in India, there does not seem to be much focus on directly exporting value-added groundnut confectionery products, which offer much higher margins than kernels. Just how much more lucrative the processed groundnuts market is can be gauged from the fact that while both processed groundnuts (HS Code 200811) and raw groundnuts (HS Code 1202) are roughly $2.5 billion markets in terms of value, the former is less than a third of the latter in terms of volume. This means an exporter of just 1 kg of processed groundnuts earns more than an exporter of 3 kg of raw groundnuts. Reality check: In FY2014, while India exported 5.1 lakh MT of raw groundnuts, it exported just 0.8 lakh MT of processed groundnuts!
Commenting on this irony, Kishore Tanna, Chairman, Indian Oilseeds and Produce Export Promotion Council (IOPEPC), tells The Dollar Business, “There is a large demand for value-added groundnut based products in the global market. This market can be tapped only if Government of India promotes their exports and provides a level playing field with other competing countries such as China and Argentina, which provide large incentives to their industries.” Not that issues with the Indian groundnut industry end here. Quality concerns like presence of high levels of aflatoxins and infestations are also afflicting the Indian groundnut market dynamics. There have been several instances of Indian groundnuts being rejected in overseas markets – the most recent being the case of Vietnam suspending an Indian groundnut consignment that had Olivier bugs.
If this doesn’t indicate nonchalance and indifference by government agencies, nothing does.
If only
Spending a couple of days in Anantapur, one cannot but feel it’s high time the government woke up to ground realities and gave the Indian groundnut industry its due. Rational farm pricing policies to ensure security to the cultivators during times of distress and climatic vagaries could be the first step. This would facilitate and motivate them to use high quality seeds and inputs, which would then inevitably translate into high quality output. How often have you heard this? Maybe, never. But the government has. And many times over!
“Groundnut varieties developed by ARS Kadiri are procured even by China” - Dr. K. S. S. Naik, Principal Scientist, (Groundnut) & Head, Agriculture Research Station, Kadiri, Andhra Pradesh
TDB: Per acre groundnut yield in India is quite low as compared to other countries. Has there been any attempt to increase the output, particularly considering the high demand in both export and domestic markets?
Dr. K. S. S. Naik (KSSN): In India, most of the groundnut is grown in rain-fed drylands and is cultivated by small and marginal farmers. The low yield can also be attributed to groundnut being a rain-fed crop, affected by intermittent drought conditions. Pests and diseases are also a common problem, which are difficult to take care of for want of water.
Productivity can be enhanced by large scale multiplication and distribution of recently released highly drought resistant varieties like Kadiri 9, Kadiri Harithandhra, Dharani and Kadiri Anantha to farmers. Improved technologies like polythene mulching, which has helped China increase its productivity, also need to be popularised.
TDB: Concerns are being raised about aflatoxin levels in Indian groundnuts, which has seen export consignments being rejected and sent back. What is ARS Kadiri doing to prevent such infestation?
KSSN: Aflatoxin contamination can happen during pre or post-harvest stages. During pre-harvest, the produce is generally free of any such contamination. Water stress during crop growth period predisposes the plant to pre-harvest aflatoxin contamination. Breeding for drought resistance solves the pre-harvest aflatoxin contamination. In fact, Acharya N. G. Ranga Agricultural University (ANGRAU), which ARS Kadiri is a part of, has already developed four groundnut varieties – Kadiri 9, Kadiri Harithandhra, Dharani and Kadiri Anantha – which are resistant against drought, diseases, pests and also aflatoxin. These have to be popularised among farmers. Aflatoxin contamination is happening mostly at the post-harvest stage due to improper processing and drying, and trade malpractices.
TDB: Groundnut varieties developed by ARS Kadiri are preferred both globally and across the country. What is the USP that makes them so popular?
KSSN: Since inception in 1959, ARS Kadiri has developed 12 different groundnut varieties for different end uses. Of these, Kadiri 6, Kadiri 7 Bold, Kadiri 8 Bold, Kadiri Harithandhra and Kadiri Anantha are very popular. Kadiri 7 and Kadiri 8 are bold varieties which are popular in the EU market. The varieties developed here have a protein content of 29%, as compared to 24% in other varieties. Their fibre content is 2%, as compared to 1% in others. Similarly, their soluble sugar composition is 15%, as compared to 10% in others. Apart from being bold, their size is also double of that of other varieties. Such is the popularity of these varieties that even China, a major producer of groundnuts itself, has been sourcing them from India.
TDB: Can you give us an idea of the share of various varieties developed by ARS Kadiri in India’s groundnuts exports?
KSSN:The manifold increase in India’s groundnuts exports over the years, mostly through southern ports to ASEAN countries, can be attributed to the uniform and attractive kernels of Kadiri 6, which now accounts for 50% of India’s area under groundnuts cultivation and 60% of the country’s groundnuts exports. Other varieties developed by us are also gaining popularity now.
TDB: Although Anantapur is a major hub for groundnuts, why is it that we don’t find many processing units or exporters in the district?
KSSN: Obsolete mills, unwillingness of millers to modernise their mills, trade malpractices for short-sighted gains and lack of knowledge of directed production for exports are some of the reasons for poor exports from Anantapur. Europeans and western markets need bold kernels, weighing at least 60 gm per hundred kernels as is the case with Kadiri 7 and 8 bold varieties. On the other hand, ASEAN countries require small-seeded attractive kernels, which is contained in the Kadiri 6 variety.
TDB: Can you provide an estimate of the per acre investment, per acre output and current pricing trends in the groundnuts market?
KSSN: For a good crop, a farmer needs to invest around Rs.60,000-70,000 per hectare of irrigation crop and half of that for rain-fed crop. Irrigated fields yield, on an average, 30 to 35 quintals per hectare, and fetch about Rs.4,000-4,500 per quintal. There are no functioning regulated markets for groundnuts. Prices of distressed sales of dry lands’ produce range between Rs.2,500 and Rs.3,500 per quintal, including various deductions for brokerages, commissions, admixtures and other standard deductions.
There is no MSP for groundnut. Groundnut marketing is neither regulated nor institutionalised in India. They are dominated by millers, traders and political lobbies. The farmer does not know that his produce is exported. Moreover, exporters/ traders do not want to share their export earnings with the farmers. Very often, middlemen, money lenders and brokers lift the produce directly from the fields of debt-ridden farmers of drylands.
TDB: What’s your view on India’s groundnut exports’ future?
KSSN: Groundnuts have an excellent future, both within India and abroad. They have many nutritional, anti-oxidant and therapeutic properties. They are wholesome food, loaded with all vitamins, minerals, proteins, carbohydrates, saturated fatty acids and resveratrol (anti-ageing element). But the only way of encashing this opportunity is by opting for direct production for different end uses by maintaining varietal purity.
ANGRAU is planning to start a model export processing plant, with a farmers’ participatory export production system, at Kadiri. This plant will have necessary hygienic storage godowns and seed to seed custom hiring machinery.
TDB: Last year, APEDA relaxed Hazard Analysis Critical Control Point (HACCP) for groundnut. Will this not affect exports?
KSSN: Application of HACCP, at various stages of the food chain, from the receipt of raw material to their grading, transportation, distribution, handling at distribution centres, storage, processing and packaging, provides an assurance of safety to the consumer. Any permanent relaxation in its implementation will certainly have a negative effect on exports. However, if it is on temporary basis, for specific period, it will not have much impact.
“Government agencies distribute seeds without ensuring varietal integrity” - K. Murugesan, CEO, Dharani FaM Cooperative Ltd.
TDB: Why is it that not much exports take place from Anantapur despite it being a major producer of groundnuts?
K. Murugesan (KM): One major reason for this is the lack of sufficient processing capabilities and capacities. The output in Anantapur is around 1 million bags per annum, while the cumulative processing capacity of all units here is around 1 lakh bags, i.e., 10% of the output. Another factor for the lack of exports from Anantapur region is that traders here do not have the purchasing power to procure the produce. Due to this, traders with deep pockets, from Tamil Nadu and Karnataka, buy groundnuts from here and get them processed in their respective states. Groundnut producing regions of Gujarat have plenty of processing units, and the traders there have the financial capacity to procure the produce and stock and process them, according to their requirements.
TDB: Is it true that due to the lack of a logical pricing mechanism, Anantapur’s groundnut farmers continue to be the victims of manipulative practices by traders? Is there any solution to this in sight?
KM: The government should create a window for farmers to sell at a certain fixed price. If this could be done, every other problem will be solved. Today, because farmers don’t have an avenue to sell, traders dictate prices. They also pack groundnuts in 60 kg bags and tell farmers that they are the standard 42 kg bags! The traders also have a network of agents, selected from among the inhabitants of the village, who persuade and convince the farmers about the veracity of such claims.
TDB: How is your cooperative trying to help the farmers?
KM: We have 1,800 farmer members from 45 villages in Anantapur district. Collectively, our cooperative farmers have 10,000 acres of land. Going by the commitment of the farmers, we plan how and where to sell the produce. We know what to expect from them. So, we fix the price and guarantee purchasing the committed produce. We not only procure their produce at prices prevailing in agri markets, but also give them a share of the profits from the marketing proceeds. In case there is less production due to a drought, we even procure at prices that are Rs.100-200 higher.
TDB: Are the Kadiri varieties a preferred choice among farmers and buyers in the region?
KM: Agriculture Research Station (ARS) has come out with several good varieties and Kadiri 6 is one of them. Unfortunately though, what goes to the market is a mixed bag, i.e., what our markets assume to be Kadiri 6, turns out to be an amalgamation of various varieties. It is difficult to differentiate genuine Kadiri 6 from the rest of the groundnuts in a bag. We once faced a big problem when we tried to export 30 MT of peanuts. We sent a sample to the buyers and they endorsed that it was of good quality. The price was also good. Later, while testing the sample in the lab, they detected Kadiri 6, JL24 and three other varieties mixed together. So, they returned the sample.
TDB: How and why is this happening? Are you not able to identify the different varieties?
KM: The problem begins at the seed sourcing stage. Farmers don’t get genuine seeds and this problem originates from government agencies, which distribute them. These agencies distribute randomly, without ensuring varietal integrity, i.e., the variety is compromised. Huge demand for seeds, especially during April/May, and inadequate availability of preferred varieties, is forcing the agencies to pack whatever varieties they have and distribute them. Hence, inevitably, the output comprise a mixed bag.
TDB: Is the preferred variety of groundnut also dependent on what purpose it’s being used for?
KM: Yes. If the purpose is oil extraction, the preferred variety is K8. If the purpose is to sell as peanuts, the preferred variety is K6. For instance, TMV variety has more oil content, so its markets are oil refineries and oil expellers.
TDB: Why is there no focus on marketing value-added products, despite their being a huge market for them?
KM: The reason for this is that there is a huge unmet demand for raw groundnuts in the domestic market itself. In India, groundnuts are widely used in cuisine and confectionery. They are in demand throughout the year. Value addition can be done only when you have sufficient stock, but here, there is always a gap between demand and supply.
“Incentives will help promote the export of groundnuts from India” - Kishore Tanna, Chairman, Indian Oilseeds and Produce Export Promotion Council (IOPEPC)
TDB: Last year, APEDA relaxed the Hazard Analysis Critical Control Point (HACCP) for groundnuts. Don’t you think this will affect groundnut exports from India, since importers might negatively view this relaxation in quality monitoring?
Kishore Tanna (KT): APEDA had started accepting FSSAI licence, apart from HACCP certification, as proof of implementation of Food Safety System in groundnut processing units exporting to non-EU countries. The point that is worth noting here is that even for obtaining FSSAI licence, units have to implement Food Safety System. This move was made to avoid duplication and the relaxation was only for those units that export to non-EU countries. For units exporting to EU countries, which have more stringent norms, the HACCP certification is still mandatory. Thus, the acceptance of FSSAI licence, in lieu of HACCP certification, should not be viewed as a relaxation in quality monitoring. Similarly, although, groundnut shelling units have now been exempted from registration, for groundnut processing units, where groundnuts are graded, sorted, handpicked and processed, registration, along with following Food Safety System, is compulsory. Exports are allowed from only such registered groundnut processing units.
TDB: Don’t you think there should be more focus on stringent quality monitoring processes and procedures, specifically viewed from the context of infested Indian groundnuts finding their way into Vietnam?
KT: Yes, all quality monitoring processes and procedures pertaining to phytosanitary measures and fumigation must definitely be followed, in order to avoid the kind of situation that was created in Vietnam or even Russia earlier.
TDB: The gap between India and the world’s second biggest groundnut exporter – USA – widened considerably in FY2015? What do you attribute this to?
KT: During FY2015, India exported about 7 lakh MT of groundnuts, as compared to 5.1 lakh MT during the previous year. A good crop, enforcement of quality controls, and good international demand contributed to this commendable performance. Lower freight rates and a weaker rupee also helped.
TDB: The global market for groundnuts is worth about $2.5 billion. Do you think India has the potential to make further inroads into it, maybe by tapping newer markets, and consolidate its position?
KT: India has huge potential to make further inroads in newer markets, as well strengthen its position in existing markets. India can very well increase its market share, particularly in EU, by emphasising on the production of quality groundnuts and a consistent and favourable export policy.
TDB: Can you give us an idea of the domestic consumption to exports ratio for groundnuts?
KT: India exports about 8-12% of the total groundnuts produced in the country, while about 60% is consumed domestically. This includes seed for sowing and table nut consumption. The rest, roughly 28-32%, goes for crushing.
TDB: Ironically, despite being the second largest producer and the largest exporter of groundnuts, India’s groundnut oil and other extracts exports are insignificant. Do you think this is a function of just high domestic demand?
KT: Other than domestic consumption, the policy of Government of India to not allow the export of edible oils in bulk also hampers exports to a large extent. At present, edible oils are allowed to be exported in retail packages of up to 5 kg only.
TDB: What are the prospects of the groundnut industry from the perspective of the new Foreign Trade Policy? Do you have any suggestions or recommendations?
KT: The Foreign Trade Policy 2015-20 does not envisage incentives for the exports of raw (in-shell and shelled) groundnuts. Incentives will go a long way in promoting the export of groundnuts from India.
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