MINIMUM EXPORT PRICE

Export price

Export pricing is the strategy for setting prices for goods sold in foreign markets, covering production, delivery (freight, insurance, duties), marketing, and ensuring profitability while remaining competitive globally, influenced by exchange rates, local demand, and competitor pricing. It's more complex than domestic pricing, requiring analysis of target markets, costs, and global economic factors to find a price that attracts foreign buyers and meets business goals.

Minium Export price

A Minimum Export Price (‘MEP’ for short) is a government-set floor price below which certain goods, often agricultural products like rice or onions, cannot be sold internationally, primarily to control exports, stabilize domestic prices, ensure local supply, and protect consumers from shortages. While intended to manage markets, MEPs can sometimes be circumvented by exporters, leading to circumvention through invoicing, and can negatively impact farmer incomes and international competitiveness.

Objectives

1. It prevents shortages by discouraging excessive exports of essential items.
2. It controls domestic price rise by prioritising local supply over foreign demand.
3. It safeguards consumers from price volatility in essential commodities.
4. It supports national food security goals by regulating the outflow of foodgrains and perishables.
5. It ensures that export incentives do not conflict with domestic economic stability.

Regulating Authority

The Directorate General of Foreign Trade, (‘DGFT’ for short) functioning under the Ministry of Commerce and Industry, is the nodal authority for regulating and announcing MEP. The DGFT notifies the MEP under the provisions of the Foreign Trade (Development and Regulation) Act, 1992. The MEP is notified under the provisions of the Foreign Trade (Development and Regulation) Act, 1992. The MEP is notified under the provisions of the Foreign Trade (Development and Regulation) Act, 1992.

MEP notifications are generally temporary and reviewed periodically, depending on market conditions, crop output, and price movements.

Imposition of MEP

MEP is imposed in India under the Foreign Trade (Development and Regulation) Act, 1992. When MEP is imposed on a commodity in India, then the Exporters must declare the Free on Board (FOB) value of their goods in export documentation. Customs authorities shall ensure that the declared FOB value is equal to or above the notified MEP. If the export price is below the MEP, the shipment is not permitted for export.

Commodities subjected to MEP

The DGFT imposed MEP on essential or sensitive commodities prone to domestic price fluctuations which include-

• Onions – One of the most frequent commodities under MEP to control domestic retail prices.
• Rice (Basmati and Non-Basmati) – Regulated to ensure adequate domestic supply and control inflation.
• Potatoes and Tomatoes – Occasionally subjected to MEP during shortages.
• Sugar – MEP may be imposed to ensure domestic price stability.
• Wheat and Pulses – Controlled during years of lower production or higher domestic demand.

Determinants

The following are the determinants for imposing MEP on certain commodities-

1. Domestic Price Levels - When domestic prices rise excessively, MEP is increased to discourage exports.
2. Production and Supply Conditions - Poor harvests or lower stocks lead to higher MEP to prioritise domestic consumption.
3. International Market Prices - MEP is aligned with global prices to maintain export competitiveness while safeguarding local needs.
4. Inflation Trends - Inflationary pressures often trigger imposition or upward revision of MEP.
5. Seasonal Demand - MEP may be revised seasonally, particularly for perishable goods.
6. Political and Social Sensitivity - Items such as onions and pulses, with high impact on public sentiment, are closely monitored.

Controlling mechanism

A government establishes a minimum rate (e.g., $1200/tonne for Basmati rice) for specific commodities. MEP makes the exports more expensive or less profitable, it discourages excessive selling abroad. MEP keeps essential goods available and affordable for local consumers, especially during shortages

Advantages

The following are the advantages of MEP-

• Stabilises Domestic Prices- It prevents sharp spikes in local markets caused by export surges.
• Ensures Food and Consumer Security – It maintains sufficient domestic supply of essential goods.
• Flexible Control Tool – It allows partial regulation of exports instead of outright bans.
• Promotes Responsible Trade – It encourages exporters to align with national economic priorities.

Disadvantages

Despite the advantages on the imposition of MEP the following disadvantages are experienced-

1. Reduces Export Competitiveness - Artificially high MEP may make Indian exports uncompetitive in global markets.
2. Uncertainty for Exporters - Frequent revisions create unpredictability, affecting long-term export contracts.
3. Administrative Burden - Monitoring and enforcement through customs increases compliance costs.
4. Distortionary Impact - May lead to diversion of goods through informal or under-invoiced channels.
5. Conflict with World Trade Organisation Norms - If used extensively, MEP can be seen as a trade-distorting measure inconsistent with free trade principles.

Beneficiaries

Consumers are benefitted from stable domestic prices and reduced inflation in essential food items. The farmers may face lower farmgate prices due to restricted export demand but gain from stable domestic markets. The Government gains an effective instrument for managing inflation and public sentiment, though at the cost of export revenue.

References:

1. www.google.com.
2. https://www.gktoday.in/minimum-export-price/.