International Trade In Agriculture

MBA 2025
 CONTENTS
Module 1
• Introduction:
• Why Nations Trade
• Theories Of International Trade
 Contents Module 2
• Basic Concepts Of Tariffs,Non Tariffs,Trade
Barriers,Subsidies
• Evolution Of GATT & WTO
• A journey from 1945- 2024
• Accord On Agriculture
• SPS & TBT Agreement
• TRIPS Agreement
• Dispute Settlement Mechanism
 Contents Module 3
• PTA,FTA,RTA,CEPA
• Nature of Indian Agriculture Exports
• Issues in Agriculture Exports
• Agri Export policies & nature of world Agri
trade
• Quality Certifications of Agri products
 Module 4
• Modes of Entry into International Markets
• Licensing,Franchising,JVs,Strategic Alliance
• Role of Culture in International Trade
 Module5
• Indian Foreign Trade policy & documentation
• Letter of credit & shipping terminology
• Future of Indian Exports.
Introduction
 Introduction
• Mesopotamia (3000 BCE-)
• Trade partners (Indus
valley,Anatolia,Egypt,Persian Gulf)
• Traded items (Grains,textiles,dates bartered
with metal,crafts,precious stones)
• Indus valley (2500-1900 BCE)
• Trade partners (Mesopotamia,central asia &
persian gulf)
• Traded items (cotton,semi precious stones)
 History
• Ancient Egypt (3000BCE)
• Trade partners (Nubia(sudan),punt (horn of
africa),Messopotamia ,Levant)
• Traded goods-Gold,Linen,Glass,grain bartered
against ebony,Ivory,incense,exotic animals
• China (Xia,Shang,Zhou dynasties) 2000 BCE
• Traded goods Silk,Jade,Bronze
• Trade partners Central Asia through silk road
 History
• Minoan and Mycenaean Civilizations (2000-
1100 BCE)
• Trade partners -[Link],Cyprus,Antatolia
• Goods Traded-Olive oil,Wine,pottery and Met-
als
• Phoenicians (1500-300 BCE)
• Trade partners-North Africa,spain,Sicily
• Traded goods-glass,timber,metal work,purple
dye
 Introduction
• Trade in Sub Saharan Africa
• Traded items , Gold,Ivory,slaves,kola nuts
• Key features of these trade
•  Barter System
•  Trade for requirements
•  Trade promoted expansion of culture
• Maize (Corn) Mexico,Potato peru,Tomato
peru,Chilli pepper south america,Coffee
Ethiopia,Banana south East Asia,papua New
 International Exports & Agri Ex-
ports in Numbers
• 1 billion Rupees is =100 crores
• when you convert to$ at current rate at 85 in
INR it becomes 8500 crores.
• International Trade comprise of
• Goods Trade (Automobiles,Electronics, Ma-
chinery,Textiles,Chemicals,Agricultural prod-
ucts
• Services Trade (IT & software
services,Financial services(banking,insurance
 International Exports
• Education & healthcare,Tourism &
Travel,Transportation & Logistics, Consultancy
& Legal services
• Agricultural Trade
• Global trade (2024) US$ 33 trillion,Goods
make up 75% and services the balance
• Agriculture which is included in this is $ 2 tril-
lion
• India Total exports $ 820.9 billion Goods
($437.4) services ($ 383.5 bn)
 Indias Agricultural Trade
• Agriculture & Food exports of India
• $ US 51.91bn
• Rice (Basmati & Non Basmati) $ 12.47 bn
• Marine products $ 7.20 billion
• Plantation (Spices,tea,coffee,tobacco)9.16
• Spices -$ 4.45
• coffee $ 1.81
• Tobacco $ 1.98
• Tea $ 0.92
• Buffalo meat,diary,poultry-$5.10bn
• Fruits & Vegetables-$3.87 bn
 Theories of International Trade
• The theories of International trade provides
insight to why nations trade and fundamental
principles associated with this
• In understanding International Trade these
theories play a big role in providing the con-
ceptual substance.
• Theory of Mercantalism (1500-1800)
• Nations trade because to export more and ac-
cumulate reserves in the form of Gold and
 Mercantalism
• Silver and these prosperity leads to the overall
development of the country
• It stood for discouraging imports
• The international trade pursued by the colo-
nial powers was the prime example
• Example The Navigation Acts (1651-1849)
• Restriction on the use of foreign ships for
trade between England and Colonies
 Mercantilism
• Exclusive trade rights
• Subsidization of domestic industries
• Import tariffs.
• Theory got discredited because of discontent
in the colonies.
 Theory of Free Trade Or Absolute
advantage.
• Adam Smith-An enquiry into the nature and
causes of wealth of Nations (1776)
• Bias against imports were removed
• No or minimal role of Government
• Ability to produce a product more efficiently
and cost effectively
• Specialization with competitive advantage
achieved through labor efficiency
 Illustration
• Country X and Country Y
• Goods:Garment & Milk
• Productivity
• Country X produces 100 garments per Day
• Produces 1000 litres per day
• Country y produces 75 garments per day
• produces 500 litres per day
• So country X is more efficient than Country Y
 Disadvantages
• Job losses
• Predatory pricing
• Monopolies
• Emergence of new companies halted
• Over exploitation of natural resources
 Theory of Comparative
Advantage..Ricardo
• Explains how & why countries can benefit
from trading with one another even if one
country is less efficient than another in pro-
ducing all goods.
• Opportunity cost:The cost of giving up the
next best alternative when making a decision
• India &Bangladesh
• Rice (25qntls) Pulses (4qntls) India
• Rice (20 qntls)Pulses (8qntls) Bangladesh
 Comparative advantage
• So as per the theory labor efficiency is there
with India with regard to Rice production and
the same can be told with regard to
Bangladesh with regard to [Link] this case
India should export Rice and import pulses as
it has lower opportunity cost
• Similarly Bangladesh Can Export pulses
• Increased production efficency
• Economic gains from trade
• Resource allocation.
 Assumptions of Ricardian theory
• Differences between countries give rise to
trade and gains from [Link] is the only
factor of production and countries differ only
in the productivity of labor in different indus-
tries
• Countries will export goods that their labor
produces relatively efficiently and will import
goods that their labor produces relatively inef-
ficiently
 Absolute vs Relative advantage
• Adam smith emphasized on the importance of
absolute advantage leading to specialization
and consequent trade whereas Ricardo con-
tributed to the theory by introducing the con-
cept of Comparative advantage thereby indi-
cating that nations can still trade even if they
don’t have absolute advantage
• Absolute advantage-Saudi arab & Oil produc-
tion & Trade
 Comparative advantage
Manufacturing in East Asia for Electronics
through skilled labor,efficient supply chains
Brazil has CA in agricultural products like Soy-
abeans,coffee,Beef,and poultry through vast
arable land,climatic conditions and large scale
farming operations
Netherlands-High value and specialized crops
 Comparative advantage
• Dutch greenhouse horticulture including tech-
nologies like artificial lighting,hydroponics
• Absolute advantage India-IT services,IT con-
sulting,BPO
• Comparative advantage-Generic pharmaceuti-
cals,Textiles & Garments
• Lower opportunity cost-Major Takeaway
 Heskher-ohlin theory(Factors the-
ory)
• Ricardo- Only labor factor
• But HO model takes labor & Capital (machin-
ery)
• Links a countrys pattern of trade to its en-
dowment of factors of production
• A country will export goods that are intensive
in its relatively abundant factor and import
relatively scarce factors.
 HO theory in practice
• USA/Mexico with regard to car manufacturing
• USA/Costa Rica-Agricultural equipments (ex-
port/ importPine apple and banana
• India/UAE-Basmati Rice/Mineral fuels
• India/Netherlands- Mango/refined petroleum
products
New theories Wallerstein,Friedman
& Paul krugman
• According to Wallerstein’s World System the-
ory there are three types of economic na-
tions-core,semi periphery,and the periphery
• The core is dominated by the nations which
have a dominant economic relationship with
the semi periphery and the [Link] pe-
riphery consist of those nations who are being
[Link] semi periphery have a
dominating relationship with periphery but
not so with the core.
 New theories
• Thus European capitalism became the core of
this system with periphery
(Brazil,India,Mexico,South
Africa,Argentina,Russia,china) providing raw
materials and the core manufacturing made
these raw materials to finished goods
• This has led to massive urbanization and
growth of megacities at the core whereas pe-
riphery continued to supply the raw materi-
als.)
 Wallerstein/Friedman
• Then semi periphery are less developed and
are often dependent on core countries for cap-
ital and [Link] export Agricultural
goods and import finished goods.
• Friedman Theory
• Free trade
• Comparative Advantage
• Floating exchange rate
• Reduction of trade deficit concerns
Paul krugman New Trade theory &
New geographic region
• Increasing returns,Monopolistic competition
• Intra industry trade because of consumer ref-
erence for variety
• Production favours Economies of Scale (Cost
advantage that the enterprise gain by increas-
ing output which as a result in lowering the
fixed cost per unit)
• New Economic geography –Spatial distribution
of economic activity
• Strategic trade policy
Porters Diamond model &National
advantage
• Six different components
• Factor endowment-Homegrown/natural en-
dowment
• Related supporting industries-Silicon valley
• Demand conditions-strong domestic
market(German car industry)
• Strategy,structure,rivalary(Japanese car indus-
try)
• Government & Chance.
 Newest theories
• Gravity [Link] between two countries is
directly proportional to their economic size
and inversely proportional to the distance be-
tween [Link] countries should look into
policies that would reduce trade costs (im-
proving transportation infrastructure and re-
ducing tariffs)
• Firm heterogenity (Melitz model)-productive
firms engage in exporting because of the fixed
costsassociated with entering foreign markets
 Global value chain Theory
• It speaks about the fragmentation of produc-
tion where various activities of production are
carried out in different [Link] focus is
on the value added at each stage of the pro-
duction chain
• So improving logistics,reducing tariff on inter-
mediate goods and enhancing standard com-
plance should be the focus
 Endogenous growth theory ;Paul
Romer
• Trade is linked to Knowledge
spilovers,innovation and human capital
• Thus policies should be in place so that Educa-
tion,research and development can be fos-
tered
• Strategic trade theory: help of the government
to make it possible for the firms to compete
internationally in specific sectors
 Trade & Sustainability theory
• This theory focuses on trade & sustainability
• Currently all agreements worldwide have this
focus
• EU CABM (The carbon border adjustment
mechanism)
• Conclusions
• Theories explained why nation trade
• All theories were reflective of their times