01 March 2004	Monday	09 Muharram 1425

Pakistan's exports have long been dominated by traditional agricultural exports such as cotton and its products, and also rice. Although, some diversification has now taken place in the export regime, yet this is lop-sided.

There are many reasons of this situation, some are related to the government policies, others to the level of infrastructure. Still others are related to lack of sufficient incentives given to entrepreneurs in this regard.

One of the main reasons why agricultural exports did not expand was trade restrictions - both direct and indirect. Among direct restrictions a considerable number of products could not be legally exported.

Among such products were live sheep, beef, mutton, animal fats, milk and its products, certain types of vegetables, wheat, pepper, pulses, beans, edible oil, hides and skins, charcoal and timber. The reason for not allowing the exports of these products was, no doubt, tied with their domestic supply vis-a-vis requirements. However, periodic reviews in this regard continued to have been taken. As a result, changes were made. And now from among the products previously in the negative list of export, a great many have been transferred to the export list.

Yet, still there is a need to adopt measures to stabilize the situation. In respect of export products there should be a continuity of policy. For this purpose, efforts should be made to maintain the level of production once achieved and be not be disturbed.

A recent instance of wheat may be quoted for not maintaining the achieved level of production. Since independence, wheat continued to be greatly deficient.

The gap used to be plugged in by sizeable imports each year. Fortunately, we succeeded in reaping a substantial crop of wheat two years back which was in excess of our domestic requirements.

Despite great efforts surplus wheat could not be exported. Lot of wheat was also damaged due to insufficient and poor storage arrangements. And now we could not maintain its production level achieved previously. Its production has fallen and efforts were made to import wheat from abroad.

Besides, the direct export trade restrictions described above, there were also a number of indirect restrictions such as the export duties, the minimum export price, control by public export corporation, enforcement of grading and standards of quality etc. Although, export trade restrictions have been removed in many cases, there are still a number of them still in force, adversely affecting export.

A number of products are subject to minimum export prices (MBP) or floor prices below which prices export is not allowed. Although, these continue to be reviewed periodically, with the changes in supply position, yet these need to be eliminated all together. Instead, stability in supply of exportable products should be brought about.

Monopoly control by public sector export corporations, like the Cotton Export Corporation and the Rice Export Corporation has now been abolished. Still, a number of other types of restrictions are in vogue reducing the flexibility of private exporters.

Grading and quality control standards are not constraints per se. Rather, the extent of adherence to them is a problem coupled with the lack of proper equipment to undertake grading scientifically. As a matter of necessity the national grade standards of quality need to be harmonized with the international norms.

Cost and benefits: Obviously, there are four parties to be affected in one way or the other by bringing relaxations in trade restrictions.

(1) Consumer: Urban consumer bears the short-term cost of this change in policy, but increase in prices is insignificant. The sensitive price index may be adversely affected by half a percentage point. The loss to consumer will in part be mitigated by the supply response of the producers. Substitution of other products by consumers, and gains from the increase in economic activity, particularly for those who obtain employment.

It may be noted that private and public consumption has been growing at a combined average rate of 11.5 per cent over the past decade. In relation to this growth a 0.52 per cent increase in the SPI seems relatively small. In the long-run the economics would adjust to these price changes and the effect on inflation would be very small.

(2) Producers will gain from the increase in prices of the commodities to the extent that higher prices are transacted at the farm gate. Traders will also gain a portion of these increases. Total gain by producers and traders as long-terms benefits would also accrue because farmers are able to switch higher valued crops.

(3) The exporting community puts in additional efforts to increase the volume of export. In the long run traders would gain from being able to develop a larger scale of operation within lower risk factor, if the government refrains from intervening in exports.

(4) The government itself will gain appreciably in foreign exchange earnings and an increase in tax revenue derived from the taxes on traders' profit. The government would also gain from the decrease in the time spent in the administration of export restrictions which would increase the efficiency of the customs.

Other benefits: The increased level of export would also generate increase in economic activities and create additional jobs. The major problem to the government would be short-term complaints of urban consumers.

The government may want to disdain itself from taking responsibility for price increases of all but the most important agricultural commodities. The government must try to strike a balance between the short-term and long term needs of the economy.

The government should try to keep export restrictions to the minimum and export bans should be temporary and only where imperative. The decision to restrict export of farm products should not be taken lightly. The reputation of the country as a reliable supplier of goods is always at stake.