Pricing technique during rising prices

Pricing technique during rising prices

By

Amlan Ray; Dean, IIPM- Kolkata,

AQ-6, Sector V, Salt Lake, Kolkata- 700091

E mail: amlanray1@gmail.com

                       

Pricing technique during rising prices

Key words: Pricing, elasticity, inflation, cost

Abstract

Pricing is the key factor in marketing mix. The revenue of a firm is dependent on correct pricing. Pricing decisions become more complex in an inflationary situation. The rising input cost put pressure on marketing manager. Passing the input cost to the consumer may bring down the total sales, resulting in declining revenue. The price elasticity of a product and the income elasticity of the consumers are final determinant of the sales quantity. Marketers are always in search for the optimum price and quantity which can maximize the firm’s revenue. In our study, we have tried to understand which groups of commodities are affected more due to inflationary condition. We have analyzed the secondary data of different product group’s sales in the current inflationary situation in India. We have also made an attempt to understand the buying behavior of a homogeneous group in case of price increase. Our study establishes that while price has adverse effect on sales, non price factors like competition, macroeconomic environment play crucial role in the sales quantity of a commodity. It is also found that mostly people try to adhere to their original buying behavior. The consumers always want to stick to their own taste and preference. This urge of maintaining same lifestyle compels the consumers to raise their willingness to pay.

1. Introduction

When you get an increment of 10%, you are not very happy as the extra income does not bring you any material comfort; it gets vanished chasing the new prices in the market. When bank gives 10 % interest to a retired person, he is still not able to maintain his life style; again the culprit is the price rise. When nominal income rises, we are not sure about the real income, maybe it is falling. In a falling income state, how do the consumers behave? Does their consumption pattern follow a typical Engel’s curve? What strategy should a marketer take to maintain his top line unaffected from the clutch of falling demand? Even if he is able to maintain the top line, will the bottom line be unaffected? Who will bear the cost of rising interest or the increased input cost?

Out of the marketing variables, pricing is that component of the marketing mix which directly determines the firm’s revenue. In an inflationary situation, pricing decisions are even more important as the cost curve of the firm heads northwards.

Our basic question is during the inflationary situation how the buying behavior of the buyers is affected?

In case of inflation, the real income of the consumer may go down. It’s a possibility but not a necessity. In most of the countries, we find that there is GDP growth in spite of inflation. So, aggregate real incomes of the people are not reducing. But it is very much possible that certain sections of the people are having reduced income. In case certain sections of the population are having reduced income and a company targets the same segment then the company’s top line might be affected.

2. Literature Review

John Quelch ( 2008) questions ‘ How can marketers cope not just with inflation but with consumer sticker shock?’In his 7 point advice to marketers, he stresses on investment on market research to understand the attitudes and behavior in response to price inflation. Quelch further says that clearly all marketers are not equally affected by inflation and luxury brands do well regardless of price. Increasing relevance and redefining value are important marketing strategy during price rise.

David B Ridley (2011) writes that inflation regulation can have the launch price decrease and profit and efficiency increase. Rising price indicate consumers’ increased willingness to pay and it happens due to rational addiction or adoption and switching costs.

As per Mckinsey researchers (Eyink, Marn, Moss; 2008) Price sensitivity research and Market price tests need to be rerun in case of down turn in the market. Unsold stock, reduced demand, excess capacity and extra price sensitiveness of consumers make it more challenging for the marketers to set price. Studying industry micro economics becomes utmost important in this situation. Similarly in inflationary situation, the consumers perceive reduced income and firms face increased price pressure which make it difficult for the corporations to set correct prices.

Ogbuechi (2011) writes that countries with high inflation rate pose a different pricing challenge to the marketing manager than do countries with moderate inflation. Pricing involves many factors like competition, market demand, government regulations. These factors become compounded in a high inflation market. Firms need to understand these factors before price setting.

2.1 Pricing technique in different phase of product life cycle

Apart from the economic condition, the pricing techniques are very much depended on the product’s phase in the PLC curve. The marketer still can get a higher price in case of a unique product during its launch but this advantage will wane away faster during inflationary condition or downturn.

2.2  Revolutionary, Evolutionary or Me too

In launch stage a product can be Revolutionary. It can set its own price. It might be new concept or the usages were unknown earlier. Over a period of time, the product needs to be evolutionary, wherein suppliers bundle more benefit or offers extra to retain market share. When, there is entry of more competitors, the product might become me too and the company does not gain by differential pricing. Customers become extremely price sensitive and price elasticity may cross 1. Here is the challenge in front of the marketer to keep the product floating in the market.

2.3 Gosling effect; does it work during inflation?:  Dan ariely in his experiment with MIT students have shown how the initial pricing bears a lingering effect in the consumers mind. If we know a cup of coffee at Barista will cost us Rs 100, we are prepared to pay that but our canteen coffee cup price is expected to be Rs 10 even for an equally good offering. Dan has explained it through the concept of arbitrary coherence. “The basic idea of arbitrary coherence is this: although prices are “arbitrary”, once those prices are established in our minds they will shape not only present prices but also future prices (this makes them “coherent”). Now will Gosling effect hold true in an inflationary situation?

3. Pricing techniques

Marketers can set the prices during inflationary situation, depending on the consumers buying behavior. In today’s market place due to cut throat competition, there is very slim chance of adhering to cost plus pricing. The possibility of pricing technique of marketers remains confined within the spheres of value based pricing depending on the offers or Competition based pricing.

3.1 Cost Based pricing: In case of cost based pricing, the entire focus of the company is on the cost incurred in manufacturing and delivering the product. Here the price elasticity or income elasticity is not given importance. The prices are based on the company’s perception about product’s value and not the consumer’s perception of the value of the product.

3.2 Market based pricing: Here cost of the product is not the main determinant. Product prices are set on the basis of the price customers are willing to pay. The seller needs information on the price elasticity on product segment and market segment.

4. Objective

Our basic research question is ‘During inflationary situation how the buying behavior of the consumers is affected?’

Objective of this study is to understand buying behavior of people during inflationary situation and to recommend a pricing technique which will help the marketers. We will try to find out:

1. During price rise, which group of commodities sales are worst hit?
2. Does the buying behavior follow Engel’s curve in real life?

5. Methodology

In our study, we have detailed secondary research and review of the existing work on pricing and inflation.

If the real income of the people goes up, then as per Engel’s curve, normal goods consumption will rise proportionately. Essential consumer goods will have less elasticity and luxury goods will have more demand. If we believe that in today’s market, Engel’s curve is applicable, then Luxury goods market should be affected the most in case of inflation.

Here our null hypothesis is H₀                                         

= In inflationary situation the consumer goods follow perfectly Engel’s curve

Apart from secondary research, we conducted a study of buying behavior on a controlled group of respondents.

1) The group is given a budget of rupees ten thousand to spend on a large number of goods.

2) Next, we increased the price of all the goods in the range of 40 to 50 percents and asked the respondents to start buying again.

This way a simulated buying behavior data is collected.

The sample size is 50

We have measured correlation between the initial data and post price increase data.

6. Findings:

Let’s follow the following times of India report dated 13^th July, 2011 titled ‘Inflation, rates hit consumer demand’. We find in the article following table:

Table 1

Top Losers Products	% Decrease in productions Apr- May’ 2011	Mighty Losers Products	% Decrease in productions Apr- May’2011
Cement Machinery	78.59	Cements All kinds	1.7
Colour TV picture tubes	50.49	Colour TV sets	9.78
Battery charger	60.34	Cigarettes	4.42
Polythene bags	45.01	Gems and Jewellery	8.05
Squash, jams, jellies, ketchup etc.	40.48	Milk	0.97

Source: Govt. data

Here we can see that the industrial products are cutting down the production on the basis of negative forecasting of market demand. We find decrease in the production of the different consumers’ goods as well. Gems and Jewellery being in the luxury segment is hit 8.05 percent, milk being an essential consumer goods, its demand has gone down only by 1 percent. Colour TV sets demand is hit but we know that there is no substantial increase in the price of the white goods segment in recent past. So, probably, this is more due the income elasticity than price elasticity which has impacted the colour TV sets demand. Squash, jams, jellies, ketchup being the luxury amongst the food items, its sales are more affected due to inflation. The report studied 270 items that account for over 45% of the index of industrial production (IIP). It has shown that products ranging from apparel, cigarettes, milk, televisions sets are all at the top of the list of the losers during April to March.

We find following information about sales of Maruti Cars from their website.

The comparative sales figures till September for both 2012-13 and 2011-12 are given below:

Table 2.

Segment Models Till September 2012-13 2011-12 % Change  A: Passenger cars : Mini M800, Alto, A-Star, WagonR 185023 234900 -21.2% A: Passenger cars : Compact Swift, Estilo, Ritz 112617 100515 12.0% A: Passenger cars : Super Compact DZire 73150 45383 61.2% A: Passenger cars : Mid-Size SX4 2861 9909 -71.1% A: Passenger cars : Executive Kizashi 35 171 -79.5% TOTAL A: PASSENGER CARS 373686 390878 -4.4% B: Utility Vehicles Gypsy, Grand Vitara, Ertiga* 40366 3846 3846 C: Vans Omni, Eeco 59166 78365 -24.5% Total Domestic Sales 473218 473089 0.0% Total Export Sales 53054 60744 -12.7% Total Sales (Domestic + Export) 526272 533833 -1.4%

* Ertiga launched in April 2012.

We study the above figures in the context of inflationary situation in the country. We have considered that real incomes of the people are falling. The Maruti products have become more expensive due to the dual effect of absolute price rise as well as interest rate increase during the above time period. When we closely follow the sales figure of Maruti Suzuki, the top most automobile manufacturer of the country, we find their sales dropped by 71 percent in the sedan segment SX-4, whereas in case of small cars, it was dropped by 21 percent. But how do we explain the 61.2 percent rise in the Swift Dzire? Probably in the sedan segment, Dzire is not a luxury product but more of a comfort. That explains the rise in Dzire sales and fall in SX-4.

6.1 Primary Research:

We had 50 respondents for a simulated buying exercise. Goods were classified into four sections namely Food items, clothing, gadgets and household goods. There were total 64 items randomly selected. We have collected data of sales at original price and post price increase. We find the following correlation between sales in original price and at increased prices for respective sections:

Food: 0.861279

Clothing: 0.878807

Gadgets: 0.87947

Household: 0.70456

Combining all the sectors, the overall correlation is 0.843755

We have further compared sales with respect to price. We have taken the 13 highest priced items in one group and 13 lowest prices goods in another group. Post price increase, the sales have gone down in higher priced item in the ratio of 9/4, in lowest priced items in the ratio of 8/5.

The strong correlation in sales figures of two data sets shows that buyers are more dictated by their taste, preference, choice rather than price. When we compare the sales data of highest priced products and lowest priced products, we do not observe any significant difference.

7. Managerial implications:

First step in the pricing technique should be classifying the products into normal, essential or luxury group. Next, we require measuring the consumer’s income elasticity. Considering the price elasticity of the product and income elasticity of the target segment, we require determining the price.

P = f ( Ep, Ey, y)

Where P = price, Ep = price elasticity of the product and Ey= Income elasticity of the product) and y = real income of the consumer.

While pricing is a function of multiple variables, the revenue is determined as a net product of price and quantity. Keeping this in mind marketers require to set his target price and target quantity of a product. Target segment is again one of the crucial determinants. Income elasticity of the consumers will set the consumers budget. If the marketer can predict these two fundamental micro economics variables correctly, the challenges before the marketers during inflationary condition become much simpler.

8. Future scope/Limitations

Our primary data is limited within city of Kolkata and may not be able to catch the buying behavior at different corners of the country. The respondent group is homogeneous upper middle class youth. The buying behavior of this segment may have no relevance in case of rural consumers with different buying patterns. Future studies can focus on these areas.

We have considered the case of Maruti Cars to assess the price sensitivity. Apart from price, there may be effect of other factors influencing the sales of Maruti car. Competition and prevailing interest rate play large role in determining automobile sales. Future studies can find out the extent of these factors and assess price sensitivities after discounting these.

Times of India report has most relevant contemporary data covering 270 items but the report has mentioned only 5 consumer goods, rest all are industrial products. Effect of price rise on industrial products and consumers products are expected to be different. A more detail study of consumer goods can give us even a clearer picture.

9. Conclusion

Price is one of the key determinants of demand. The effect of price depends on the income of the target segment and product type. There can be different pricing strategies to combat the effect of inflation. Feedback from the consumer through proper market research is key in decision making. The marketers need to reach to the optimum quantity with optimum price to achieve maximum revenue. Effect of price will depend on the category of product, its usage and more importantly the target segment. Macroeconomic environment will also play a major role in this. In case of consumer durable interest rate may be a key point. Other macroeconomic factors like change in income level, unemployment are equally crucial.

Spotting the target market correctly and finding out their income elasticity in inflationary situation is critical. In case of a homogeneous group the variation in sales is expected to be less in spite of change in price. The consumer may stick to the product set if the perceived value is high for him and if he is able to afford his taste and preference. Depending on the product and target segment, the market can take the right pricing decision.

 Our primary data shows that there is strong correlation between the buying preference of the consumers before and after increase of price. We find price will have a bearing on the sales but still consumers try to adhere to their own taste and preference. While in macro level the products may follow typical Engel’s curve, in micro level for a homogenous group, it may not work. Perceived value of a product can increase the consumers’ willingness to pay for it.  We may conclude that for an established brand targeting a particular segment, price increase in an inflationary situation is viable in spite of challenges particularly when the competitors are also forced to increase price.

Reference

1. (  2008) Kotabem Peloso, Gregory, Noble, Macarthus; International Marketing: An Asian Pacific Focus , published by John Wiley & Sons, Chapter IV, page no 448- 459
2. ( 2008) Eyink Cheri N , Marn  Michael V., and Moss Stephen C. ;  Pricing in an inflationary downturn;  Mckinsey Quarterly; September, 2008 issue (https://www.mckinseyquarterly.com/Marketing/Pricing/Pricing_in_a_downturn_2189
3. ( 2009) Kotabe Masaaki & Helsen Kristiaan;  The  Sage Handbook of International Marketing ; Sage, Section V; page no 361- 372
4. ( 2010) Ariely Dan; The Fallacy of Supply and Demand (http://danariely.com/the-books/excerpted-from-chapter-1-%E2%80%93-the-truth-about-relativity/)
5.   (2011) Sidhartha; Inflation, rates hit consumer demand; Times of India, 13^th July, 2011

(http://articles.timesofindia.indiatimes.com/2011-07-13/india- business/29768567_1_cement-   production-iip-data-consumer-goods)

6. ( 2011) http://www.marutisuzuki.com/monthly-sales.aspx

7. (2011) Ridley B David; ‘Pricing Strategy under Inflation Constraints (http://www-management.wharton.upenn.edu/henisz/msbe/2011/3_2_Ridley.pdf)

8. (2008) Quelch John; How Marketers Can Manage Price Inflation (http://blogs.hbr.org/quelch/2008/06/how_marketers_can_manage_price.html)

9. Ogbuechi, O. Alphonso; ‘ Pricing strategies in High – Inflation Markets: Implication for the Multinational Corporation’ ; Journal of Applied Business Research, Volume 9, Number 1.

Rejected consignment of Indian shrimps – Ethoxyquin or Non tariff barrier?

Rejected consignment of Indian shrimps – Ethoxyquin or Non tariff barrier?

Amlan Ray

Profile of author:

Amlan Ray is a B.Tech from University of Calcutta and MBA from IISWBM. Post MBA he started his career with A.V.Birla group and later moved to Forbes Gokak, A TATA enterprise. He switched over to Academics in 2003 and joined IIPM’s Chennai campus as Dean- Administration. In 2008, Amlan moved to Lucknow to set up a new campus of IIPM. After successful completion of the project, Amlan joined Kolkata campus of IIPM since 2012 as the Dean.

Amlan’s teaching and research area focuses on Economics and Foreign Trade. Due to his interest in Economics, he has additionally obtained a Masters in Economics and currently pursuing his PhD in foreign trade. Amlan has written several columns on Economic issues in Microsoft Network Website and contributed research articles in different publications including IIPM Think Tank. Amlan has also conducted a workshops funded by World Bank in the areas of Health Economics on behalf of Planman Consulting for the health professionals of Sri Lanka.

Abstract

With more and more trading of fresh food items, health and hygiene has become concern for all the trading nations. Though the perspectives in developed and developing countries are not similar, still the concern for sanitary and phytosanitary protection remains valid for both. Often developed countries are accused of using these protection clauses as non tariff barriers. Recently, we saw Indian Shrimps were almost on the verge of ban in Japan. 200 plus consignments got rejected till the end of October. It has affected lacs of aquaculture farmers in Odisha and West Bengal. Japan is still accepting fish with 1 PPM Ethoxyquin; an anti oxidant but suddenly lowered the permissible level of Ethoxyquin in shrimp to 0.1 PPM. This norm is much more stringent compared to the standards in other developed countries in European Union and USA. Do WTO rulings allow Japan to suddenly implement this kind of safety standard? What is the way out for the Indian firms engaged in Shrimp exports? And the bigger question is how the marine industry and the Government in India will react to this erratic change of norms? Indian marine industry has sailed through rough weather earlier and we can hope it to tide over this crisis as well.

Middle class Bengalis in Kolkata fish market suddenly had a reason to celebrate. The tiger prawns, a delicacy for any Bengali family was suddenly available in abundant quantity and that too at a very cheap price! Usually Tiger Prawns are mainly for exports and seldom available in the local market. Even if you come across, you need to be prepared to pay a fortune. The celebration continued for a couple of days followed by a rumor that these are toxic prawns rejected by the exporters. The rumor had some substance in it. Indeed there were rejections of hundred of consignments of shrimp exported to Japan from Eastern India. It is debatable and probably untrue to call this toxic. But the consignments were rejected due to an anti oxidant named Ethoxyquin in Indian shrimps. Food safety commission of Japan arbitrarily and without any prior intimation made it mandatory to test all import consignments for Ethoxyquin and that too at a permissible limit of only 0.1 PPM in shrimp while fish continues to be imported at 1 PPM. There is no scientific basis of determining ethoxyquin at a level of 0.1 PPM. Japan himself is allowing 1 ppm for fish from India. EU or USA also does not have this kind of stringent norms. But where is the alternative for the marine exporters? Japan is one of the largest importers of marine products from India. 60 percent of the tiger prawns cultivated in Odisha and West Bengal are exported to Japan. Japan, Europe and USA combined market has a share of 55 % of all sea food export from India.

The belligerent Chief Minister of West Bengal Ms. Mamta Banerjee writes in the first week of October to Union Commerce Minister Mr. Anand Sharma for immediate intervention. She asks Government of India to take up the issue with the authorities in Japan. As a matter of fact, in the first week of September itself Indian delegation comprising Ms. Leena Nair; the Chairperson of Marine Product Export Development authority ( MPEDA) and Mr. S.K.Saxena Director, Export Inspection Council paid a visit to Japan. They took up the issue with the Japanese Minister for Health, Labor and Welfare Mr. Yoko Komiyame who referred the matter to the Food Safety commission. Indian delegation mentioned about the plight of the 50000 to 100000 people who depends on aquatic farming. But the delegation returned empty handed. As per newspaper report rejected consignments were initially 10, eventually rose to 131 in the first week of September and finally crossed 200 by the end of the month.

Ethoxyquin is a quinoline based antioxidants and an important ingredient in shrimp feed with almost all shrimp units in India using it. Japan permits a minimum residue level of 1 PPM for fish but for shrimp made the permissible level 0.1 PPM. Though Indian aquatic farmers were caught unaware, Japan started this process with other countries in the month of May itself.

 According to Department of Animal Husbandry, Dairying & Fisheries ( DADF) exports from India include black tiger and fresh water shrimps, frozen versatile fish, frozen  skipjack and squid. These are sourced mostly from Andhra Pradesh, Maharashtra, Kerala, Tamilnadu and West Bengal. But incidentally, the rejected consignments were mostly from West Bengal and Odisha. These two Eastern states together export almost Rs 1200 crore to Rs 1500 crore worth of marine products annually from India.

Exports from Vietnam

Though Indian exporters were caught off guarded, the Japanese authorities started testing Ethoxyquin since May 18^th on Vietnamese imports. In June, 2012 Vietnam reviewed the situation and made a list of aquatic feed without Ethoxyquin. On June, 15^th, 2012 Directorate of Fisheries issued documents to direct sub departments of Aquacuture to notify Japan’s alert to local aquatic feed produced. Directorate of Fisheries asked feed producers not to use Ethoxyquin. They also notified that sub departments of Aquaculture must inspect local feed producers and report to Directorate of fisheries about the feed products containing Ethoxyquin. The department in turn intends to remove all those feed products from the list of feed products legally used. Sub Department of aquaculture also guided farmers to stop feeding shrimp one day before harvesting in order to reduce the residue in shrimp.

As an immediate reaction to Japan’s stance on Ethoxyquin , the Vietnamese Ministry of Agriculture and Rural Development and the Vietnam Association of Seafood Exporters and Producers ( VASEP) have taken following measures to keep its presence in Japanese Market unaffected:

In addition to the continued diplomacy to resist any discrimination against Vietnamese shrimp, Agricultural Minister of Vietnam suggested agricultural sector to search for an alternative substance replacing Ethoxyquin. Moreover the sector is advised to regulate Ethoxyquin level in shrimp feed at 0.5 ppm instead of prevailing rate of 150 ppb.

Mr. Bui Duc Quy, Director of the Aquatic Testing, Experimenting and Quarantine Centre under the General Department of Fisheries said that the centre had found two antioxidants similar to Ethoxyquin. One is BHA (Butylated Hydroxyl Anisole) and BHT ( Butylated Hydroxyl Tolvence). However these substitutes of Ethoxyne would be comparatively costlier.

Exports from Thailand

“Shrimp exports from India have been banned because of the use of antibiotics, which Vietnam and China are also doing” said Somsak Praneetatyasai, President of Thai Shrimp Association. Thailand is seeing a windfall opportunity in the Japan Government’s action against India and Vietnam. Shrimp farmers in Thailand use more pro-biotic medicine instead of antibiotics. Thailand has two major markets abroad United States and Europe. Both were hit by economic crises. Now Japan’s dependence on the imported shrimp is a big opportunity for Thailand. Thai shrimp export to the USA have dropped down to 40 percent from 50 percent of the total. However export to Japan has risen to 23 percent. Marine Industry of Thailand can take solace in the sudden increased demand of Thai shrimp in Japan.

Earlier experiences

This is not the first time Shrimp industry in India is tasting the troubled water. Earlier in 2003, Indian exporters faced hard times due to antidumping charges in USA.  During the antidumping case in USA, we found that Indian exporters got good support from the importers associations in USA. Can there be a similar support from the importers lobby in Japan this time? Earlier in 1976, Indian shrimp faced ban in USA as Indian farmers did not use ‘turtle extruder devices’ to protect endangered turtles. But finally India received a favorable judgment as Indian shrimp industry is not mechanized.  The EU antibiotic residue alert in seafood in 2002 threatened to curtail seafood exports from India.  

Bhattacharya (2005) observes that in case of international trade disputes, it takes long time in settlement. During this interim period trade is affected due to uncertainty amongst importers. Importers are not usually willing to take the risk of dealing in a controversial item. He cites the example of antidumping case against Indian leather. In that case though the final verdict was in favor of India but it came after two years.  India was out from South African market permanently due to this uncertainty. In the context of antidumping case against India in USA, Bhattacharya concludes that “The Shrimp industry in India had always focused on one or two major markets for growth. Previously it was Japan and during the last few years it has been the United States. It has now learnt the importance of diversification.” But has it really understood the importance of being present in multiple markets?

Marine Industry in India

For the first time in 2011-12, Indian Marine export has crossed the 3.5 Billion USD. Total export for the year was 862021 tonnes valued at 3508.45 USD million. This is a record in terms of aggregate volume as well. Sea food export in 2011-12 had a year to year growth of 6.02 % in quantity and 22.81 % in value. The figure should be considered in the context of depressed global market under recession.

Major items of exports and export markets

Frozen shrimp continued to be the major export value item accounting for 49.63 % of our export earnings. Shrimp export during 2011-12 has increased by 24.86 % in quantity and 37.99 % in US $ value indicating a rise in the average price.

South East Asia is presently the largest buyer of Indian marine product with a share of 25.09 % in USD realization. EU had a share of 22.96 %, USA 18.17 %, Japan 13.01 %, China 7.51 %, Middle East 5.33 % and other countries 7.95 %.

Export to South East Asia grew by 86.51 %. Increase of frozen shrimp contributed largely to the growth. US market also registered a growth of 45.39 % and again frozen shrimp is the biggest contributor. Japan registered a positive growth of 22.35 % in USD. Exports to China showed a massive decline of 40.17 % in value.
Exports of frozen shrimp to South East Asia have registered a growth of about 356.36 % in USD. Exports of frozen shrimp to USA have also showed a growth of about 47.55 % in USD t in 2011-12.

MAJOR MARKET WISE EXPORTS

(Q: Quantity in Tons, V: Value in Rs. Crore, $: US$ Million)

Country	Unit	Share %	April 2011- March 2012	April 2010- March 2011	Variation	(%)
Japan	Q: V: $:	10 12.9 13.01	85800 2140.67 456.35	70714 1683.39 373.00	15085 457.28 83.36	21.33 27.16 22.35
USA	Q: V: $:	8 17.94 18.17	68354 2977.53 637.53	50095 1990.26 438.49	18259 987.26 199.04	36.45 49.60 45.39
E.U.	Q: V: $:	18 22.96 22.96	154221 3810.44 805.38	170963 3459.40 765.15	-16742 351.04 40.23	-9.79 10.15 5.26
China	Q: V: $:	10 7.59 7.51	84515 1259.23 263.30	159147 1977.81 440.10	-74631 -718.58 -176.80	-46.89 -36.33 -40.17
South East Asia	Q: V: $:	40 25.27 25.09	343962 4193.27 880.09	233964 2114.48 469.36	109998 2078.79 410.73	47.01 98.31 87.51
Middle East	Q: V: $:	4 5.39 5.33	38155 894.38 186.85	43983 670.35 148.31	-5827 224.03 38.53	-13.25 33.42 25.98
Others	Q: V: $:	10 7.96 7.95	87014 1321.72 278.94	84225 1005.77 222.50	2789 315.94 56.44	3.31 31.41 25.37
Total	Q: V: $:	100 100 100	862021 16597.23 3508.45	813091 12901.47 2856.92	48931 3695.76 651.53	6.02 28.65 22.81

Source: MPEDA

MPEDA has an ambitious target of USD 4.5 Billion for the year 2012-12. Their Chairperson has already visited Japan to solve the impasse over rejection of Indian shrimp. We have seen MPEDA playing a crucial role in the growth of Marine Industry in India. It is a statutory body set up by Govt. of India under MPEDA act 1972. MPEDA is under the ministry of commerce, Govt. of India. MPEDA is the nodal agency for promotion of export of marine products from India. It has presence in all maritime states through its field office to promote export as well as aquaculture production. If we want to implement any change in the shrimp feed, MPEDA will have to play a major role.

Safety standard in food trade and WTO

 Aparna Swahney in her paper ‘Quality Measures in Food Trade’ writes: “The concern for food safety and quality in global trade has increased with the marked shift in trade towards fresh food… Fresh food is more prone to certain microbiological contamination” The food quality and health standards are legal in global trade under the provision of the WTO agreement on the application of Sanitary and phytosanitary measures (SPS). They are meant to protect human health.  They are legal under the WTO agreement on Technical barriers to Trade (TBT). But SPS or TBT must not be used as a non tariff barrier to trade.  Both Developed and developing countries have raised concern about non tariff barriers in food trade. Developed countries raise the issue of restrictive sanitary measures based on precaution without adequate scientific basis. Developing countries are more concerned about the lack of harmonization, non recognition of equivalency standard.

WTO agreement of sanitary and phytosanitary protection states “Reaffirming that no Member should be prevented from adopting or enforcing measures necessary to protect human, animal or plant life or health, subject to the requirement that these measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between Members where the same conditions prevail or a disguised restriction on international trade”

Article 4 on Equivalency states “Members shall accept the sanitary or phytosanitary measures of other Members as equivalent, even if these measures differ from their own or from those used by other Members trading in the same product, if the exporting Member objectively demonstrates to the importing Member that its measures achieve the importing Member's appropriate level of sanitary or phytosanitary protection. For this purpose, reasonable access shall be given, upon request, to the importing Member for inspection, testing and other relevant procedures.”

We find in case of Ethoxyquin, the permitted level is way above 0.1 ppm in USA and EU market. Even in Japan for fish the accepted level of Ethoxyquin is 1 PPM.

Article 7 on transparency states “Members shall notify changes in their sanitary or phytosanitary measures and shall provide information on their sanitary or phytosanitary measures in accordance with the provisions of Annex B.”

Annex B of the agreement states further” Except in urgent circumstances, Members shall allow a reasonable interval between the publication of a sanitary or phytosanitary regulation and its entry into force in order to allow time for producers in exporting Members, and particularly in developing country Members, to adapt their products and methods of production to the requirements of the importing Member.”

The way Japan made Ethoxyquin testing compulsory, it appears to defeat the principle mentioned in Article 7. As already mentioned by Indian Government, if it really submits the matter for intervention of WTO, what will be the outcome?

India’s Foreign Trade Policy and Marine Export

Govt. of India has identified certain sectors under its focus product scheme (FPS). Under FPS exports from a few sectors like Marine, Handicraft, Leather etc. are encouraged and incentivized. Now marine sector is a priority sector for India because of the employment generation capability of the sector and low investment. Capital output ratio in Marine sector is quite low. Marine exports comprise almost 4 percentages of our total merchandise exports from India. More than 1 lac people involved in aquaculture are now affected due to the rejections of our consignments in Japan. USA and EU markets are the biggest for Indian marine products. But both are affected due to recession. India is trying to diversify its exports to Latin America and Africa. But feasibility of export of marine products to these new markets is questionable. Govt. of India has limited options before it to protect the interest of marine industry. WTO route is tempting but time consuming. Will MPEDA try to change the pattern of fishmeal like Vietnam? Or will it depend on its negotiation skill to impress upon Japanese authority?

Poser for the reader:

What should be the strategy of Govt. of India to solve the impasse? What should be the approach of the Marine export firms of India in this crisis? 

 

 

 

 

 

 

 

Bibliography:

1.       ( March, 2005) Sawhaney, Aparna ‘Quality Measures in Food Trade: The Indian Experience’; The World Economy, Vol 28, No 3,pp. 329-348,( http://smallb.in/sites/default/files/knowledge_base/best_practices/QualityMeasruesinthefoodtrade.pdf)

2. ‘Japan's move to inspect Indian consignments for Ethoxyquin rattles shrimp exporters’ by SARMA,  CH. R.S. & KURIAN ,VINSON ; The Hindu Business Line; Chennai Edition dated 12^th September, 2012

3.       ‘Centre sounds hopeful on Japan lifting ban on shrimp import’; Times of India, Bhubaneshwar edition; 4^th October; 2012

4.       ‘Indian Govt. Plea to Japan on shrimp export rejections’ by Joseph, George; Business standard; Calcutta edition dated Sept 13^th; 2012

5.       ‘Japan likely to ban shrimp imports from India’; Business Standard; Calcutta edition; August 24^th; 2012

6. ‘Mamata Banerjee seeks bailout for seafood exporters from commerce ministry’ by Ghosal Sutanuka; The Economic Times; Calcutta edition dated 3^rd October.

7.       ‘Shrimp export sags under surge in Japan's rejection’ by Joseph,George ; Business Standar, Calcutta edition  dated 05 Sep 12

8.       ‘Shrimp exports to Japan fall on anti-oxidant issue’ by Joseph, George; Business Standard Calcutta edition dated 16^th November, 2012

9. http://talkvietnam.com/2012/09/effort-to-deal-with-ethoxyquin-matter-shrimp-export-to-japan/
10. http://www.foodnavigator-asia.com/Policy/Japan-s-new-ethoxyquin-standard-spooks-Indian-shrimp-industry?utm_source=copyright&utm_medium=OnSite&utm_campaign=copyright
11. http://vccinews.com/news_detail.asp?news_id=26962
12. http://www.eng.vasep.com.vn/Daily-News/53_5644/Ethoxyquin-a-huge-obstacle-for-Vietnam-shrimp-exported-to-Japan.htm
13. http://www.nationmultimedia.com/business/Japans-ban-of-Indian-shrimp-a-boon-to-Thai-export-30192904.html
14. http://www.wto.org/english/tratop_e/sps_e/spsagr_e.htm

15.   The Indian Shrimp Industry Organizes to Fight the Threat of Anti-Dumping Action by Bhattarcharyya , B. (http://www.wto.org/english/res_e/booksp_e/casestudies_e/case17_e.htm)