Fixing a minimum export price (MEP) for certain commodities has been adopted as a strategy among a slew of measures to augment availability of essential food commodities and contain price rise.
Onions and potatoes are the produce targeted for such a treatment. MEP for onion has been proposed at $300 a tonne.
However, fixing MEP may not be a prudent measure; if anything, it is antediluvian.
In the past, MEP was used as a tool in a number of commodities such as onion and basmati rice to obtain higher price from the international market or restrict the volume of export out of the country.
It is important to recognise that there are ways to beat the stipulated minimum price through invoice manipulation and other ingenious methods.
Often, exporters subjected to MEP make quality adjustments. In quality matters, our border control is not really robust.
It is also possible that the difference between MEP and actual (lower) price agreed with the overseas buyer is adjusted in subsequent deals or in other products traded. So, MEP is not really a foolproof tool that can help obtain higher price from overseas market.
An ideal way to regulate export of commodities is to impose duty.
Such a levy will restrict the possibility of ingenious adjustments or invoice manipulation. Importantly, while serving the objective of obtaining higher price, export duty will generate instant revenue for the exchequer.
Hassle freeThe seller will obviously include the amount of export duty in the price of the product and it will be paid for by the overseas buyers. Alternatively, the seller will absorb the duty and take lower profits on the export deal. This will make for a hassle-free and transparent transaction.
Depending on market conditions, the Ministry of Finance can effect changes in the rate of export duty. To take prompt decisions relating to commodity trade and tariff measures, the government needs to set up a commercial intelligence and research desk to track global and domestic market dynamics and be able to have a scientifically evolved market outlook that will facilitate pro-active and prompt policy decisions.