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Changing Direction of Trade of Dairy Products in India – An Application of Markov Chain Analysis

Shilpa Shree. J Serma Saravana Pandian A. Kumaravelu Natarajan
Vol 7(3), 57-62
DOI- http://dx.doi.org/10.5455/ijlr.20170221051154

India now has indisputably the world's biggest dairy industry. The dairy sector in the India has shown remarkable development in the past decade and India has now become one of the largest producers of milk and value-added milk products in the world. Tabular analysis was used to assess the trade performance of dairy products in India. From the results, India became a net exporter of dairy products till 2009. On the other hand the rapidly growing domestic demand led to increase in India’s dairy imports which is due to change in consumer taste and preference, rise in income, etc. The study was also undertaken to find out the direction of trade of dairy products from 2007-08 to 2012-13 using Markov Chain Analysis. From the transition probability matrix for exports of dairy products, it was observed that India could not retain its previous export of dairy products to Bangladesh, Egypt A Rp, Saudi Arab and also other countries during the study period except U Arab Emts. From the transition probability matrix for imports of dairy products, it was observed that India could not retain its previous import of dairy products to United States, France, Netherland and Italy during the study period. However, Netherland has higher probability to gain 21 per cent of the market share of Italy alone. At present, Imports of dairy products exceeds than exports in India was due to the quality of milk produced in the country falls below the internationally accepted standards. Development of awareness, mindset and commitment on improving the quality of milk is necessary.


Keywords : India Trade Dairy Products Markov Chain

Introduction

Global trade in livestock products is expanding rapidly and significantly due to increase in consumer demands linked to growing educational and awareness of consumer, internationalisation of tastes and habits, developments in science and technology and improvements in communication and transportation. India now has indisputably the world’s biggest dairy industry—at least in terms of milk production; last year India produced 146.3 million tonnes of milk, with an annual growth rate of 6.27% and per capita availability is 322 grams per day in 2014-15 (Annual report, 2015-16). The dairy sector in the India has shown remarkable development in the past decade and India has now become one of the largest producers of milk and value-added milk products in the world. India is the largest exporter of dairy products. Bangladesh, Egypt Arab Republic, United Arab Emirates, Saudi Arabia, Algeria and Yemen are the major export destinations (APEDA). The value of output from the dairy sector is 3496720 million rupees in 2012-13 at current prices (GOI, 2014).

The globalization of dairy industry has led to paradigm shift of international dairy markets from being supply driven to demand driven. Dairy sector has become among the highest gross value sectors in agriculture with higher prices and correspondingly higher value of milk production. It has been estimated that demand of milk will rise to 156 million tons by 2020 (Parthasarathy et al., 2004). Estimates by the Planning Commission of India indicate still higher demand increases (182 million tons by the year 2021-22). Also, economic growth and changes in dietary preferences in the Southeast Asian countries have stimulated consumption of dairy products, even though it is not a part of their traditional diets. Livestock sector stand as a central pillar for India’s economic development. Thus, a deeper understanding of the dynamics of trade performance of dairy sector in India would contribute towards the development strategy of this sector.

Materials and Methods

The data used in this study were collected from various secondary sources. Time series data for twenty year (1991 – 2011) on export and imports (quantity as well as in value terms) of dairy products for the world and India were collected from Food and Agricultural Organization (FAO) of the United Nations, FAO trade statistics and FAO commodity Review and outlook. The data on top exporting and importing countries were collected from Agricultural and Processed food products Export Development Authority (APEDA), Ministry of Commerce and Industry, Government of India. The reference period for the analysis is from 2007-08 to 2012-13.

  1. Tabular analysis – to study the pattern of trade of dairy products in India
  2. Markov Chain Analysis – Transitional Probability Matrix

For finding out the direction of trade of dairy products from 2007-08 to 2012-13, Markov chain analysis was used. Markov analysis is an application of dynamic programming to the solution of a stochastic decision process that can be described by a finite number of states (Daniel and Padberg, 1962). Any sequence of trials (experiments) that can be subjected to probabilistic analysis is called as stochastic process. For a stochastic process, it is assumed that the movements (transitions) of objects from one state (possible outcome) to another are governed by a probabilistic mechanism or system. A finite Markov process is a stochastic process whereby the outcome of a given trial t (t = 1, 2… T) depends only on the outcome of the preceding trial (t-1) and this dependence is the same at all stages in the sequence of trials.

Consistent with this definition, the structural change in the trade in dairy products of India was examined by using the Markov chain approach. Central to Markov chain analysis is the estimation of the transitional probability matrix P. The element Pij, of this matrix indicates the probability that export will switch from category i to category j with the passage of time. The diagonal element Pii measures the probability that the export share of ith country will be retained (Sreenivasamoorthy and Subramanyam, 1999 and Tejaswi et al., 2006). The value of export of particular country was considered to be a random variable which depends only on its previous exports and this dependence is the same among all periods. A process satisfying these conditions is called a first order stationary Markov chain. Similar methodology was used by Serma et al., 2013, to study the direction of trade for leather exports in India

Results and Discussion

Pattern of Export, Import and Balance of Trade of Dairy Products in India

In India, Pattern of export, import and Balance of trade of dairy products are shown in Table 1.

Table 1: Pattern of export, import and balance of trade of dairy products in India

Export Import Net trade
1991 2314 2135 179
1992 613 9445 -8832
1993 1525 2583 -1058
1994 8204 998 7206
1995 3633 5128 -1495
1996 930 490 440
1997 1968 804 1164
1998 1067 2004 -937
1999 4627 19193 -14566
2000 9897 1624 8273
2001 21898 1567 20331
2002 15005 1766 13239
2003 7745 12071 -4326
2004 38006 2552 35454
2005 68128 2184 65944
2006 41874 3522 38352
2007 59910 2620 57290
2008 52924 3773 49151
2009 29254 8719 20535
2010 28755 35539 -6784
2011 16039 50057 -34018

From the Table 1, the trend for imports continued till 1993, when, for the first time, India’s dairy exports exceeded imports. However, between 1993 and 1999 imports and exports kept edging each other out, and by 2000-2001, India became a net exporter of dairy products. Also, with increasing income levels in urban centres, the demand for processed dairy products has gone up leaving little surpluses for exports. India needs to diversify its product range to capture the new markets as the food habit patterns is changing rapidly in south and east Asian markets (Ingavale, 2012). At present, the rapidly growing domestic demand led to increase in India’s dairy imports which is due to change in consumer taste and preference, rise in income, etc.

Direction of Trade and Changing Pattern of both Exports and Imports of Dairy Products in India

The transitional probability matrices were presented in Table 2 and 3 depicts a broad indication of the changes in the direction of trade of dairy products in India. The time period considered is for seven years (2006 – 07 to 2012 – 13).

The four major exporting countries for dairy products taken for this analysis were Bangladesh, Egypt,

United Arab Emirates, Saudi Arab with the remaining importing countries grouped as others (APEDA). As could be seen from the Table 2, the transition probability matrix indicated that India could not retain its previous export of dairy products to Bangladesh, Egypt A Rp, Saudi Arab and also other countries during the study period except United Arab Emirates. However, Egypt has higher probability to gain 11 per cent of the market share of United Arab Emirates alone.

Table 2: Transitional Probability Matrix for India’s Export of Dairy Products

Bangladesh Pr Egypt A Rp United Arab Emirates Saudi Arab Others
Bangladesh Pr 0 0 0 0 0
Egypt A Rp 0 0 0 0 0
U Arab Emts 0 0.114859 0.158638 0 0.726503
Saudi Arab 0 0 0 0 0
Others 0 0 0 0 0

India’s previous dairy products export to United Arab Emirates market was retained to the level of only 16 per cent during the current period. From the remaining 84 per cent, nearly 11 per cent of United Arab Emirates share of dairy products imports from India was lost to Egypt and the remaining 73 per cent was lost to others countries.

The four major importing countries for dairy products taken for this analysis were United States, France, Netherland, Italy with the remaining exporting countries grouped as others (APEDA). As could be seen from the Table 3, the transition probability matrix indicated that India could not retain its previous import of dairy products to United States, France, Netherland and Italy during the study period. However, Netherland has higher probability to gain 21 per cent of the market share of Italy alone. With regard to other countries, only 42 per cent of the previous period dairy products imports to India market were retained during the current period. The remaining per cent was diverted to United States and Netherland.

Table 3: Transitional Probability Matrix for India’s Import of Dairy Products

United States France Netherland Italy Others
United States 0 1 0 0 0
France 0 0 0 0.000703 0.999297
Netherland 0 0 0 0.307087 0.692913
Italy 0 0 0.209641 0 0.790359
Others 0.002994 0 0.00579 0 0.420446

Conclusion

The study was undertaken to analyse the pattern of export, import and balance of trade of dairy products in India using tabular analysis indicated that India became a net exporter of dairy products till 2009. On the other hand the rapidly growing domestic demand led to increase in India’s dairy imports. The study was also undertaken to find out the direction of trade of dairy products from 2007-08 to 2012-13 using Markov Chain Analysis. India could not retain its previous export of dairy products to Bangladesh, Egypt A Rp, Saudi Arab and also other countries during the study period except United Arab Emirates. India could not retain its previous import of dairy products to United States, France, Netherland and Italy during the study period. At present, imports of dairy products exceeds than exports in India was due to the quality of milk produced in the country falls below the internationally accepted standards. Development of awareness, mindset and commitment on improving the quality of milk is necessary. Intensive efforts are needed to meet the WTO’s Sanitary and Phytosanitary (SPS) and Technical Barriers of Trade (TBT) agreements and Codex Alimentarius Commission guidelines on quality and safety.

References

  1. Agricultural and Processed Food Products Export Development Authority, (APEDA) http://agriexchange.apeda.gov.in/indexp/Product_description_32head.aspx?gcode=0407
  2. Annual Report. 2015-16. Department of Animal Husbandry, Dairying and Fisheries. Ministry of Agriculture and Farmers Welfare, Govt. of India, New Delhi.
  3. Daniel and Padberg (1962). The use of Markov process in measuring the changes in market structure, Journal of Farm Economics, 44 (1): 189 -199.
  4. Food and Agriculture Organization of the United Nations (FAO). FAOSTAT StatisticalDatabase. http://faostat3.fao.org/browse/T/TP/E
  5. Government of India (GOI). 2014. Basic Animal Husbandry Statistics. Ministry of Agriculture. Department of Animal Husbandry, Dairying and Fisheries. New Delhi.
  6. Ingavale, D. (2012). A study of international trade of Indian Dairy Industry. Indian Journal of Applied Research, 1(12): 127 – 128.
  7. Parthasarathy, Rao, P., Birthal, P.S., Kar, D., Wickramaratne, S.H.G., Shrestha, H.R. (2004). Increasing livestock productivity in mixed crop–livestock systems in South Asia. International Crops Research Institute for the Semi-Arid Tropics, Patancheru, India.
  8. Planning Commission. 2012. Report of the Working Group on Animal Husbandry and Dairying for the Twelfth Five Year Plan 2012–2017. Government of India, New Delhi.
  9. Serma, A. S. P., Prabu, M. and Jayavarathan, B. (2013). Changing Dimensions of Export of Leather and Leather products in India – A Markov Chain Analysis. Indian Journal of Applied Research, 3(2): 69-70.
  10. Sreenivasamoorthy, D. and Subramanyam, K.V. (1999). Onion exports markets and their stability for increasing India’s exports: Markov chain approach. Agricultural Economics Research Review, 12(2): 118 – 127.
  11. Tejaswi, P.B., Naik, B.K., Kunnal, L.B. and Basavaraj, H. (2006). Direction of Trade and Changing Pattern of Indian Coffee Exports – An Application of Markov Chain Analysis. Karnataka J. Agric. Sci., 19 (1): 71-75.
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