Sunil Jain: Taxing exports

PERSPECTIVES

India may pride itself as a great producer and exporter of top quality basmati rice, but Pakistan is rapidly eating into its market share. In the case of exports to Europe, which account for a fourth of total basmati exports, India’s exports fell  while Pakistan’s rose more than two-and-a-half times in the period between October 2007 and September 2008. India’s exports of basmati rice to Saudi Arabia fell from a peak of 136,000 tonnes in March, 2008 to around 38,000 tonnes in September, 2008 (overall exports have halved between April and September, 2008, from 260,000 tonnes to 127,000 tonnes).

The reason for this is two-fold. One, India’s rice costs a lot more than Pakistani rice (due to its higher quality and the relative value of the currencies). Two, when exports were at their peak in April, the government introduced an export tax of Rs 8,000 per tonne ($160 at today’s exchange rates). Between the two of them, Pakistan’s price advantage is so large, it more than makes up for the difference in quality. It’s not immediately clear why, given the sharp fall in exports, the government is not scrapping the tax (the industry’s not asking for any subsidies!) or reducing the minimum export price, but one explanation is the official data on the collapse is yet to come in. By the time it does, of course, the danger is the rice may have boiled over.
 

ROTTING RICE (or why Pakistan’s share of basmati exports is rising and India’s is  falling)
HIGHER FARM PRICE PLUS EXPORT TAXES ... (price paid to farmers per tonne of paddy, in $)
	Low quality Basmati	High quality Basmati	Export Tax*
Pakistan	280	328	0
India	440	640	160
* per tonne of rice
... MAKE EXPORTS THAT MUCH LESS COMPETITIVE (exports to Europe, in tonnes)
	From India	From Pakistan
2005-06	218,827	53,196
2006-07	285,037	38,567
2007-08	268,991	98,923
2008-09*	26,421	9,038
* Sept 1 to Oct 15