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Hurdles in onion exports

  1. Hurdles in onion exports
  2. Debt servicing getting out of proportion
  3. Pakistan amends agreement with China
  4. Rescheduling of Pakistan's debt
  5. Foreign debts and role of economic managers
  6. Accounting profession and its development in Pakistan

Minimum export price, fixed by the government, may lead to a loss of huge forex

By Syed M. Aslam
August 16 - 22, 1999

A huge exportable surplus of onion, the basic ingredient of all food preparations, would not help earn a substantial foreign exchange from its exports. In fact, Rs 21.50 per kg, the minimum export price of onion, fixed by the government, is resulting into drain of the precious foreign exchange.

Mateen Siddiqui, the chairman of fruits, vegetables processors and exporters association, Karachi, said that the price fixation is rendering onion exports incompetitive in the international markets, particularly Sri Lanka which imports about 95 per cent onion from Pakistan.

While the onion supply at this time of the year continues from the North West Frontier Province there is no dearth of onion in the domestic market and the export prices fixed at minimum Rs 21.50 per kg does not reflect the market realities, he said.

The minimum price, he said, translates into a C&F price of $ 418 per tonne to Sri Lanka. While Pakistani onion fetches a better price than many of its competitors in Sri Lanka, between C&F $190-195 per tonne as compared to $ 180 per tonne, it is nowhere close to $ 418 per tonne.

While the Pakistani onion has been able to penetrate the Sri Lankan market successfully the importers are not reluctant to pay the duties based on shipments priced at $ 418 per tonne from Pakistan. However, Pakistani exporters have to compensate the Sri Lankan importers to pay the $ 223 difference through ‘hawala’ arrangement which hurts the economy in many ways.

How the ‘hawala’ arrangement hurts the economy, can only be illustrated by an example: An exporter ‘A’ in Pakistan who ships 10 tonnes of onion to Sri Lanka at $ 418 per tonne C&F, strikes a deal with a local person asking him to arrange payment of the difference of $ 223 per tonne between the official and the actual export price to an importer in Sri Lanka in local currency. He pays a fixed amount for the service and the local contact makes arrangement through a source in Sri Lanka to deliver the money. The personal payment system thus deprives the local banks substantial amounts in revenue.

Mateen said that there is no shortage of onion in the country and the prices are stable. Onions are retailing for as low as Rs 5 per kilogram and as high as Rs 8 per kg depending on the quality. The crop from Sindh province, which alone produces enough onion to meet half of the domestic demand, will start arriving after six weeks from now.

Mateen said that with the Sindh crop, just a few weeks ago, the present surplus from the NWFP crop has the potential to earn government a substantial foreign exchange if the government do away with minimum export price. Instead the exporters should be allowed to quote prices based on the real market values to encourage exports, he added.

One of the major competitor for the onion market in Sri Lanka has imposed a ban on the export from June 1 making it possible for Pakistan to export increased quantity to the Sri Lankan market. While Pakistan still faces competition from Holland and Indonesia the proximity should allow Pakistan to fill the gap left by India. However, he added, this can only be possible if the government do away with the unrealistic minimum export price. Australia also exports a much durable variety which costs at much below the export price fixed by the government.

Mateen claimed that at present the country has an onion exportable surplus of 400,000 tonnes. With the going price of $ 195 per tonne this translates into a C&F value of $ 78 million, a substantial amount indeed for the country where every single expo-dollar counts.

He said that doing away with the minimum export price would not result in onion price increases as number one: there is plenty of stock and, number two, the crop from Sindh is just few weeks away. However, discouraging the onion exports will pose many problems when the fresh stock arrives, he cautioned.

This is all the more necessary as unlike last year, when Pakistan exported some 60,000 tonnes of onion to India within two months, the tension between two countries at present makes it impossible for Pakistan to make any more shipments to India.

Onion is the basic kitchen item in India and Pakistan and also in other countries of the region including Bangladesh and Sri Lanka which imported Pakistani onion last year and so developed the taste for it that 95 per cent of Pakistani onion exports are absorbed by Sri Lanka alone.

In Pakistan onion is grown the year round in all the four provinces though Sindh produces half of the total onion which is used for both local consumption and exports.

In 1995-96 onion was sown on over 77,900 hectares which increased by 2.2 per cent to 79,600 hectares in 1996-97. The yield also registered a similar increase from almost 1.1 million tonnes to 1.12 million tonnes during the same period. Onion season in the two primary producing provinces— Sindh and Balochistan— runs from November to March and May to October respectively.

Last year the government also fixed an onion export price of Rs 20 per kg in addition to 100 per cent regulatory duty. It has abolished the RD but the minimum export price still keeps on discouraging exports.