India’s move to roll back onion export floor price throws up several questions
The Dollar Business Bureau | @TheDollarBiz The Indian government has rolled back the minimum export price (MEP) for onions by around 40% from $500 per tonne (about Rs.30 per kilogram) imposed on July 2, 2014 to $300 per tonne (FOB). According to a Directorate General of Foreign Trade (DGFT) notice dated 21 August 2014, the new MEP will be applicable with immediate effect. India usually has a surplus of onions and exports stood at around 1.5 million tonnes in FY2013-14, with most of the shipments going to Bangladesh, Malaysia, Sri Lanka and UAE. However, there were concerns that delayed rainfall may lead to a shortage in August – September 2014, and the National Agricultural Cooperative Marketing Federation of India Ltd. (NAFED), under Ministry of Agriculture & Cooperation, had floated tenders on July 19, 2014 to import 70,000 tonnes of onions for delivery in August 2014. The tenders, reportedly, got a poor response with just three applications.
Average prices for all states. Source - AgmarknetThe government now says that supplies have improved and lowering the MEP for onion exports will help farmers get better prices. However, what is surprising is that NAFED has issued a new tender on August 21, 2014 to import about 50,000 tonnes of onions from Pakistan and Afghanistan for distribution in various States of India. Unlike the previous tenders, NAFED has specified that early delivery will be preferred. The process is also expected to be more transparent this time and the tender will be opened on September 5, 2014, the last date for submissions of applications. However, official data shows that onion wholesale prices have in fact increased slightly from July 2014 in India, and the move to import onions (from Pakistan) while lowering the MEP to boost onion exports on the same day raises more questions than answers. First, the ceiling price is not mentioned in the import tender notifications. Second, will imports not cause a dip in local prices and hurt farmer income? And finally, will a lower MEP (40% less than the previous one) not create an artificial scarcity of onions in India? NAFED has refused to comment.
This article was published on August 23, 2014.
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