The recent lifting of the Minimum Export Price (MEP) aims to boost agricultural exports, yet critics argue it’s a redundant policy harming small farmers and failing to control food inflation. India’s export bans on rice and fluctuating MEPs reflect ongoing efforts to manage domestic supply and prices, while the country remains a major exporter of both onions and basmati rice.

 Anisree Suresh

The story of Onion and Basmati is quite interesting for two reasons. First, it dictates the country’s political economy by continuing to be an election agenda, and second, it decides India’s global trade status and position in the agri value chains and global food security. The recent decision by the Union Government to lift the Minimum Export Price (MEP) on these products raises a crucial question: Does India need a Minimum Export Price? While this move aims to boost agricultural exports, the MEP is ultimately a redundant policy tool that harms small farmers, distorts trade, and fails to control domestic food inflation effectively. Therefore, India should refrain from reintroducing the MEP to foster a more stable and productive agricultural market.

India imposed a ban on the export of non-basmati white rice in 2023 and a ban on the export of broken rice in 2022 in order to ensure sufficient domestic supplies and control rising food inflation. India has banned or allowed export to any country through permits for rice, wheat flour, onion, pulses and sugar. The MEP on onions had been imposed after the government lifted the ban on its exports in May 2024. On September 13, the Union Government removed the minimum export price (MEP) of US $950 per ton on premium basmati rice and US $550 per ton for onions. It also cut the export duty on onions from 40% to 20%. Likewise, the MEP on basmati rice was imposed on August 25, 2023, at $1,200 per tonne, which was reduced to $950 per tonne in October 2023. This change is expected to boost India’s agri commodities exports, as India is a major exporter of onions, earning significant revenue. The net export value of onions was Rs 3,326.99 crore in 2021-22, Rs 4,525.91 crore in 2022-23 and Rs 3,513.22 crore in 2023-24. India is also the leading exporter of basmati rice to the global market. It exported 5.2 million tonnes of basmati rice worth $5.84 billion in FY24.

MEP is one of the many policy tools used to control India’s exports of food commodities. MEP is a regulatory threshold set by the government to control the lowest price at which goods can be exported, and it is an export control policy tool that the government has been employing to protect consumers from inflationary pressures, ensure orderly domestic supply by making these products unattractive in the global markets. MEP caps are always higher than the prevailing prices in global markets, disincentivising the export of certain products. MEP is usually used in products with a particular political-economic significance, such as rice, onions, potatoes and edible oil. These products are such typical staple foods in India that price fluctuations and food price inflation affect the political climate of India.

However, MEP remains a redundant policy tool as it has unintended consequences that continue to impact the food sector trade. First, it costs the producers as they lose an opportunity for remunerative prices and disincentivises them to produce more. Second, it disproportionately impacts the small farmers in India, as large agri firms have means and ways not to be affected by the MEP policy by adding agency commission from buying houses, which gets added to the total price quote. Third, MEP, along with other export restrictions, disincentivises most producers to produce more, affecting domestic and international supply while demand continues to sustain. On the other hand, if exports are allowed, farmers might be incentivised to produce more. Hence, supply will increase, and the price will decrease. Fourth, India’s employment of MEP impacts international prices, potentially leading to a surge in global prices of these products, given that India is a major exporter of rice and onions. At the same time, since imports have not been restricted, increased global prices cause an increase in domestic prices. Hence, the MEP policy does not help reduce the domestic inflationary trend, which is the very objective the policy was intended to serve.

While the Union Government’s decision to remove MEP was a welcome one, India must also ensure that it will refrain from reintroducing MEP to these products as agri trade policies are changed frequently, providing policy instability and not incentivising farmers to produce more and increasing India’s exports.  The constant government intervention displays the duality of conflicting policy objectives, with policymakers intervening to protect farmers from price declines with Minimum Support Prices and consumers from price increases with policies such as MEP. This creates a not-so-optimum equilibrium in the market and impacts the demand and supply relations. Here, the policy’s benefits do not outweigh the costs, and trade continues to be distorted.

Published Date: October 4, 2024