Context: The Centre may be considering a minimum export price (MEP) for a host of specialty rice, including the basmati variety, to ensure that unscrupulous traders don’t ship excess quantities abroad.
India had banned export of all non-basmati white rice a few weeks ago to check domestic price rise but it allowed exports of basmati and parboiled rice.
Minimum Export Price (MEP)
It is the price below which an exporter is not allowed to export the commodity from India.
MEP is imposed in view of the rising domestic retail/ wholesale price or production disruptions in the country.
MEP involves “fixing a floor price” below which an exporter shall not sell the product to an overseas customer.
While the government stipulates a MEP from time to time, in market parleys it is largely seen as an outdated concept as it gets easily circumvented.
The system is duped easily by invoicing at or above MEP for the record but actually pricing and selling the good at prevailing market price.
Depending on the pre-agreed arrangements, the price differential is later adjusted through future transactions or quality claims.
With exporters having mastered this route, MEP has become an ineffective instrument to restrict commodity export or contain domestic price rise.