The DGFT raised the MEP on rice to USD 500 from USD 425 a tonne by a notification issued on 27 December. In rupee invoicing cases, the minimum price is Rs. 20,000 per tonne now as against Rs. 17,000 per tonne in the previous dispensation. The exports of non basmati rice were banned altogether 75 days ago on 15 October, to conserve food supplies in the country and keep food prices in check 15 days later, following the pressure from exporters, the ban which did not honour even LCs already opened, was diluted to allow export of fine rice above Rs. 17 a kg (USD 425 per tonne). This was only on low price rice. The minimum has been raised to Rs. 20 a kg.

The current restriction measure is not directed towards rice as such whose supplies are adequate and the prices are under control. The rice export ban will dilute the threat from wheat whose supplies in the world market have virtually dried up. The current wheat price in the world market is nearing USD 950 a bushel which works out to a steep Rs. 14 per kg. The virtual ban on the export of non basmati rice is expected to calm wheat price. The high wheat price has forced many consumers towards rice which is cheaper than atta (wheat flour).

On the up side, Indian exporters are getting better prices from the African market where the consumers have developed a taste for Indian rice. Kakinada on the East Coast is still busy with ships calling on the African Coast.

The failure of the PDS to deliver wheat to the poor is the starting point of the rice problem. Unless the government allows the market mechanism to work and lifts the many barriers like the Government controlled Mandis between the farmers and the consumer, the distortion in the food supply chain will continue at the cost of farmer as well as the consumer. The poor MSP (Minimum Support Price) of Rs 6.75 a kg for super fine rice brings in little to FCI which gets its stock from compulsory levy from the rice mills. There is no relation between the current consumer price of Rs. 17 a kg for parboiled rice and Rs 6.75 a kg MSP.

Palm oil: The DGFT banned the import of palm oil into Kerala altogether on 24 December. In the previous dispensation announced two months ago on 16 October, 2007 imports from Kochi alone banned. The measure covers the full range starting from crude palm oil (CPO) to refined oil. Even palm kernel oil which is used for soap making is covered under the ban. Apparently, the move follows the Kerala High Court’s intervention on the petition of the coconut growers pleading for protection from cheap imported palm oil.

The restriction to protect domestic industry is in violation of Article XI of GATT 1994 which bars all physical prohibitions or restrictions on imports. The move also flies in the face of the Government policy which promotes the import of edible oil as a measure of consumer welfare. Our database reveals that the import duty on CPO was reduced to 45 percent from 60 percent in January 2007 in the wake of rising international market price. The government has maintained the tariff value on CPO at USD 447 per metric tonne which is only 47 percent of the current world price of USD 950 per metric tonne. In other words, the customs duty is charged on a low artificial base which yields an effective rate of only 21 percent. On top of this, the rupee has fallen by 13 percent in the last one year to reduce import value. Our sources say that the CPO import price of about Rs. 40 to the dollar works out to Rs. 50 landed in Kerala after accounting for customs duty. The final price of refined oil to the consumer is in the range of Rs. 60 per kg. Coconut oil is at a premium of Rs. 15 per kg over refined palm oil and retails for Rs. 75 per kg.

The near tripling of palm oil price along with soybean oil in the world market is due to rising demand from China and India. Bio-diesel, the alternate to fossil fuel oil is yet another reason for the rise in CPO. Palm oil and soybean oil are the market makers in India. Coconut oil follows palm oil and thus the rise in palm oil has only helped coconut oil which will always be at a premium on account of consumer preference.

The ban on imports into Kerala is little more than cosmetic since supplies from the numerous ports along the Western Ghats will flow into the state. Even the entry tax into Kerala cannot protect the local coconut oil which has to follow palm oil.

The step up in the use of import restrictions in the trade policy, specially in the case of agro goods will erode the competitiveness of the Indian agriculture. An open economy, on the other than, will improve its muscle and tone.