India: understanding the opportunities

India this year surpassed China as the country with the world’s largest population.

"The excitement over India’s development has only grown since it surpassed China as the country with the largest population. But you need to look closer to really understand its potential."

So, it is only natural all eyes are on this market to understand its needs, its capacity and where the opportunities might be. But to grasp all these you must understand the complexity of India’s growth journey.

While there are parallels with China’s growth story, India is carving its own course.

The Indian economy is now powering global economic growth. The country is adding more than 40 per cent of Australia’s population each year – with 28 million people entering India’s middle class each year.

While almost one in five people globally live in India, 13 percent of the population is undernourished. India is a net exporter of agricultural goods, particularly wheat and cereals, seafood and meat. However, it is also a major importer of pulses, oils and fruits.

Familiar constraints

India is not China, but some of the constraints they face are similar. One of these is the need to manage resources effectively in order to spur further growth.

India has 18 percent of the world’s population but only 3.7 percent of world’s arable land, 4 per cent of global fresh water, supported by the use of 14 per cent of the world’s fertiliser.

Maintaining growth and expansion of production will require significant advances in productivity and efficiency on-farm. And logically, some key choices on how to direct precious land and water resources to specific commodities. In other words, what to supply locally and which gaps to fill through imports.

India cannot do all this alone and must rely on external partners who understand how the country works and what it needs. This a clear opportunity for Australian farmers to help feed the growing Indian population and middle-class.  

Most Australian agricultural trade to India occurs to supplement Indian production when the season has impacted domestic crops. Much of the volatility in agricultural relates to India maintaining a relatively protectionist stance.

While India will continue to import agricultural goods, they may not always be a consistent or predictable export avenue. This isn’t to say there aren’t opportunities, but let’s look closer at the bilateral relationship.

Australia in India

India is Australia’s fifth-largest export market, receiving just under 4 per cent of Australia’s exports, valued at US$21.6 billion in 2023.

As with India’s broader imports, Australia’s exports are dominated by coal, gold and pulses. Australia is also a significant exporter of education services because of the large number of Indian students studying in Australia.

Agricultural exports to India tend to fluctuate significantly depending on the season in both India and Australia. As mentioned, Australian exports most often occur on an opportunistic basis to support domestic production and supply.

The other notable factor in India’s trade landscape is the high level of diversification of their imports. Indeed the heaviest reliance on Australia comes from the wool sector where Australian exports constituted 39 percent of total Indian imports in 2023.

Even with chickpeas, Australian exports made up only 17 per cent of India’s imports in the same year. While Indian agricultural imports are not currently heavily focussed on the Australian trading relationship – there are signs this is changing.

Between 2019-2023, the average growth in Australian exports to India each year has outstripped the total growth in Indian imports in a number of key commodities – pulses, cotton, wheat, canola, sugar and sheep meat. The only major Australian agricultural commodity export to decline in that timeframe was dairy.

Much of this can be attributed to both the Australia-India Economic Co-operation and Trade Agreement

(ECTA) and the improving relationships which come with negotiations. Since ECTA came in on 29 December, 2022, agricultural exports to India are 50 per cent higher – driven by products like sheep meat, seafood, broad beans, citrus and almonds.

ECTA was a significant advancement in trade relations between India and Australia. It represented the first trade agreement between India and any western nation, especially after nearly a decade of not signing any such agreement with a large economy.

While ECTA is a stepping stone to a larger Comprehensive Cooperation Agreement (CECA) which is in negotiations, it did deliver many tariff reductions or eliminations which have benefitted both agricultural and non-agricultural commodities.

The tariff changes for agricultural products include immediate removals for sheep meat, wool, barley, oats and fresh rock lobsters. Australia will also benefit from the elimination or reduction of tariffs over 2, 4 or 6 years and some quota increase for nuts, fruit and vegetables, onions, garlic, berries, infant formula, lupins, wine and some oils.

At the heart of the most discussions over forecasts for Indian food demand, is the question of whether self-sufficiency can be maintained as the population continues to grow, and more particularly modernise as demand for per capita food supply also increases?

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Targeting the right areas

So what are the specific opportunities stemming from India’s continued growth?

A growing middle-class brings changing consumer demand for high quality, sustainably produced, clean and green goods – an area where Australia has an excellent reputation.

Further, Prime Minister Narendra Modi’s push to grow the domestic manufacturing sector, particularly food manufacturing, may see an increase in demand for goods to be manufactured and exported.

While Australia won’t be feeding India, such is the size of the market, small parts of a booming market represent significant opportunities for Australian producers and supply chains. India’s policy of self-sufficiency may appear to rule out any long-term trading relationship.

Indeed, the protectionist sentiment of India’s government towards may limit Australia’s trading relationship in the short-term. But one area of likely demand from Australian exporters is providing high-quality, clean and green produce to the growing middle class.

While providing staples such as cereals and lentils may remain on an opportunistic basis, Australia could increase exports of meat, dairy products, fresh fruits and vegetables to fill rising need. Or increasingly provide bulk agricultural exports for India’s food and fibre manufacturing sector.

Other opportunities may arise if Indian agriculture transitions away from highly water-intensive crops to  either dryland cropping or to higher-value irrigated crops.

For a nation with a competitive and innovative agribusiness sector like Australia, the global food production and supply chain are as important as they ever have been.

In the post pandemic world, the need to shore up food supply is a significant challenge given continuing climate impacts and geopolitical instabilities.

The modern rise of India is undoubtedly an opportunity for Australia to leverage its long and valued trading and political relationships in the region.

Mark Bennett is Head of Aus Agribusiness with ANZ

This is an edited extract from the “India: The next frontier for Australian Agriculture” report.