ITC Executive Director speech at the 3rd International Spice Conference
04 Feb. 2018 - Jaipur, India
Ladies and gentlemen,
I am delighted to be here in Jaipur to open the 4th International Spice Conference.
As the head of an agency focused on trade, I could not have asked for a more appropriate topic. For as long as people have set out from their homes to sell what their communities produced, and buy what others could offer in return, spices and trade have gone hand in hand.
Historical accounts speak to the trade between Indian kingdoms and ancient Rome. Spices featured prominently. Tamilian literature from two thousand years ago contains references to Greek-speaking sailors arriving on the Malabar coast, paying in gold for the black pepper they carried home.
More than a thousand years later, pepper, cinnamon, cloves and nutmeg were among Europe’s most sought-after commodities. In the words of one author, “their sources and supply lines dealt wealth or poverty to nations; spices were as critical as oil or lithium are in the twenty-first century.”
By sea, and over land, spices were transported from their native grounds in India, Sri Lanka, and Indonesia. Arab traders brought them to the gates of the Mediterranean. Merchants from Venice and Genoa took the last step, purchasing spices in Alexandria, Cairo, and Tyre, and selling them on to Europeans willing to pay high margins for the flavours, medicinal properties, and social status that exotic spices offered.
A desire to cut out the various middlemen – to control the spice trade and its profits – was a major reason the Portuguese, the Dutch, and the English grew increasingly obsessed with finding a sea route to India. On May 20, 1498, Vasco da Gama landed in Calicut. Not very long after, the East India Company was opening trading posts from Surat to Calcutta. Indians know where this story goes.
During the age of imperialism, increased international trade coincided with economic divergence. In the early 1600s, India and China accounted for large shares of global economic and manufacturing output. By the 1950s, their share was minuscule, and per capita incomes were a fraction of those prevalent in the industrialised west.
Since we are talking about spices, I should point out that from a culinary standpoint, trade during this era did have a few silver linings. Plants like tomatoes, potatoes, and chili peppers came to Eurasia and Africa from their home in the Americas. Without this so-called ‘Columbian exchange’, Rajasthan’s famous laal maas would be an entirely different colour.
More to the point of our discussion today, trade has played a very different role in the past 70 years. In the age of independence, trade has been associated with economic convergence.
The developing countries most active in international trade are the ones that have registered the highest rates of growth and human development.
Over the past four decades, China, India, and other developing countries have increasingly adopted market incentives and encouraged international trade. In doing so, they were emulating postwar Japan, Korea, Chinese Taipei and parts of Southeast Asia. The result has been dramatically faster growth, and poverty reduction on an unprecedented scale.
How does trade-led growth work? In developing countries, tradable sectors tend to be more productive than the rest of the economy. Tapping into world markets allows countries to use external demand to shift people and capital out of lower- productivity sectors, typically subsistence agriculture, and into higher-productivity activities. The overall result is to make the economy more productive.
The trade-led development model is history’s most proven path out of poverty. But it faces two big challenges.
The first is inclusion. Not everyone has shared in the development gains of the past generation. Many countries, especially in Africa, remain on the margins of the global economy. They export unprocessed raw materials if anything at all. Within countries, many communities have not shared in rising prosperity. In India, states that trade less, amongst each other and internationally, tend to be poorer.
The second challenge is newer. Typically, low-income countries have used manufacturing to generate jobs for unskilled workers. The examples that come to mind are Vietnamese or Bangladeshi farmers stitching fabric in clothing factories, or a Chinese migrant worker assembling components in the consumer electronics value chains.
Today, however, increasingly sophisticated machines are automating jobs that used to be done exclusively by people. By eroding the advantages offered by low-cost labour, automation is changing the economics of where companies choose to locate operations. The Indian Finance Ministry’s new Economic Survey warns that for India and other late arrivals to the convergence party, the risk is that “resources, especially labour, will move from low productivity, informal sectors to other sectors that are… only marginally more productive.” In other words, the risk is that instead of moving from low-productivity agriculture to high-productivity, high-wage manufacturing jobs, people will end up in low-productivity service work.
The inclusion problem means that greater targeted efforts are needed to connect businesses in marginalised countries and communities to international markets. ITC was created to do just this, and it remains the focus of our work.
The implication of the second challenge is that while manufacturing remains important, countries should be working to encourage value-addition in all sectors, including agriculture and services. Agriculture has special importance here, which I will come back to in a moment.
In responding to both of these challenges, micro-, small, and medium-sized enterprises have an important role to play. MSMEs are critical determinants of whether greater connections to international value chains, or increased value addition, translates into broad-based income growth. The reason is straightforward: MSMEs account for the vast majority of jobs and businesses in all economies. When MSMEs are able to add value to their goods and services, become more competitive, and connect to international markets, it means better jobs and higher wages in the less privileged sections of the workforce.
Why do I argue that value addition in agriculture is so important? The sector continues to occupy nearly half of the Indian workforce. And while sophisticated services are a key driver of growth in the Indian economy, they typically demand levels of education attained by only a small proportion of the population. Value-addition in the agriculture sector will be central to wide-scale improvements in people’s livelihoods. If increasing agricultural yields in the 1960s and 1970s helped India achieve self-sufficiency, boosting sustainability and value-addition in the decades ahead will be essential if India is to eliminate extreme poverty in line with the United Nations Global Goals for Sustainable Development. As I like to say, we need to make agriculture ‘cool’ again!
Spices, as high-value products, offer enormous potential in this regard. India’s spice exports are worth around $1,700 per tonne, higher even than oilseeds, for which the figure varies from $1,000 to 1,400. Spices already account for 6 to 8% of Indian agriculture exports by value. But targeted investments are needed to enable small-scale producers and processors to unlock the sector’s full potential. This is especially true given the changing business environment that is at the core of the International Spice Conference agenda.
Disruption is nothing new to spice farmers. Typically small-scale, they have long had to cope with volatile prices and production losses due to plant disease and unexpected weather.
But the pace of change is accelerating.
New processing technology – steam sterilisers, precision grinding and packing equipment, and the like – has made it easier to produce and trade high-value processed and branded spices, as well as oleoresins. At the same time, technology makes it possible for farmers to get closer to markets and consumers, and to capture a greater part of the value added by reducing intermediation. But technology at the farm level remains relatively basic, limiting scope for more direct sales of highly-processed, well-packaged, branded spices.
Meanwhile, consumers are demanding more stringent food safety standards for pesticide residue and mycotoxins, both for raw spices and especially for processed spices. Demand for premium products like organic spices has created niche market opportunities, but also compliance costs for producers and processors.
ITC has for years brought transparency to the agriculture sector. Our online tools like Standards Map shedding light on the plethora of standards with which would-be exporters now need to comply. Our sustainability tools foster compliance and traceability among producers, buyers, and standards-related organisations - lowering the cost of reaching premium markets. More recently, we have been working directly with MSMEs in the spice sector in India and Africa to improve incomes and livelihoods through increased trade and investment.
Spices were identified as a high-potential sector for ITC’s Supporting Indian Trade and Investment for Africa (SITA) project, a UK-funded initiative to foster trade and investment ties among MSMEs in eastern Africa and India. The project has matched Indian expertise with producers in Ethiopia and Rwanda, with the goal of expanding spice production and processing in the two countries.
For the Indian companies, the partnerships represent investment opportunities and a broadened supplier base, especially for pesticide-free spices. For the Ethiopian and Rwandan producers, the partnerships mean agronomic training in growing new plant varieties, together with the construction of processing facilities and buy-back arrangements with Indian buyers that locked in prices up front, insulating farmers from price shocks.
In Ethiopia, ITC has facilitated training for farmers on improved post-harvest handling of ginger and turmeric. Earlier, bad agricultural practices had led to widespread crop destruction by ginger wilt, a plant disease, impacting the livelihoods of some 80,000 farmers. The SITA project team has developed posters and comic booklets in Amharic to help farmers improve post-harvest handling, and catalysed government support for tackling the ginger wilt problem.
In Rwanda, the project has partnered with the country’s National Agricultural Export Development Board (NAEB) to introduce six new varieties of chilli. In one year, farmers involved with the project scaled up the area under cultivation from 4 to 23 hectares. This is expected to more than quadruple during the next growing season, to 100 acres.
One of the Rwandan smallholders, Giscard, is here with us in Jaipur. Giscard used to grow tomatoes, but sometimes found himself unable to make ends meet when prices fell in the local market on which he depended. In 2016, ITC brought Akay Flavours, an Indian company, to Rwanda. They were impressed with the climatic conditions, government support, and land availability, but found it hard to justify investing in a processing plant there with annual production below the 1000-tonne break-even threshold. The chili experiment was the SITA team’s ‘jugaad’ solution to get chili production up to that level in stages.
Giscard is attending this ISC not as a tomato grower but as a chili exporter. He leads 23 smallholders who are expected to generate over $150,000 in revenue by the close of this financial year.
In the years ahead, increasing the value added to agricultural production will be a crucial factor in employment income growth in both India and Africa. Targeted investments in helping MSMEs overcome information asymmetries about crop varieties, sustainable agricultural practices, and accessing new markets can yield major benefits in terms of livelihoods. It can improve environmental outcomes. And it can be good for bigger businesses’ supplier networks and their bottom line. Disruption, if harnessed and used to empower the base of the agriculture pyramid can bring tremendous economic and social progress.
At ITC, we look forward to working with you to achieve more of these win-win-win outcomes.