INDIAN RICE EXPORT TO IRAN, NIGERIA, BANGLADESH--TO STAY STRONGER

This is an article from Business Line ePaper appeared on 20th December, 2013

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BUSINESS LINE 20.12.2013

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Tejinder Narang

Three developments of November 2013 may further strengthen India’s rice exports of both Basmati and Non- Basmati rice (NBR).  India’s number one rank in world’s rice shipments is likely to be maintained -- about 10-11 million tons (mts) exports in 2013-14, approx. 30% share in global trade of 35mts.

Iran 

Immediately after US/EU-Iran interim agreement of 24th November, “export sentiment” for 1121 Basmati to Iran turned bearish on the ideas that Iran may divert business to Pakistan and Thailand. That may be a knee-jerk presumptive reaction. A reality check is different. Any import diversion may be insignificant even after lifting of partial trade restrictions.

India is uniquely placed to utilize Rs 50000 crore (eq $8 billion) held in UCO bank on Iran’s account. Pakistan and Thailand lack such a facility. US sanctions on Iran’s oil exports remain intact, neither curb on banking stand relaxed instantly.  Lifting of all restrictions depend upon signing of comprehensive agreement.

             

Behind this interim settlement is the theological conflict between Shia-Sunni in the Muslim world. Pakistan is closely aligned with Sunni Saudi Arabia, who has vociferously opposed this rapprochement.  Any accommodation by Iran to Pakistan means implicit support to Saudi’s ally, which is highly unlikely.

India’s global Basmati exports are 3-3.5 million tons per annum. Iran’s annual import requirement of Basmati rice varies 1.7-2 million tons while Indian supplies have increased form 0.5 mts to 1.1 mts in last four years with better price realization. In 2013-14 India’s share could be about 80% of Iran’s import of rice—or about 1.4-1.5 mts or about 120k per month. This reliance cannot be downgraded impulsively. On the contrary, dependence on Indian cereal can be greater –especially with new hybridized paddy 1509 with better yield and lower costs.

In 2012-13, Pakistan’s total basmati rice export world- wide to 96 countries is 0.63 mts (source –REAP-Rice Exporters Association of Pakistan).  Pakistan’s supplied only 43000 metric tons to Iran. Shipments are averaging 3600 metric tons per month versus Indian average of around 100000 metric tons. Pending smooth banking arrangement with Pakistan, ideological differences and lack of research, capacity / quality capability, persistent power shortages, Pakistani rice has no match or competition with Indian 1121 variety. 

 Thailand has been supplier of superior quality Non-Basmati rice (NBR) to Iran. Hom-mali (fragrance rice) virtually stopped after 1121 was introduced. Grain length and elongation characteristic of 1121 are unrivalled by Hom-mali which costs about $1100/mt. Iran/Indian shippers use certain blends of Indian Basmati and long grain NBR to lower fob values. On 25th July 2013, Iran sourced 2, 50,000 mt of NBR--white rice at $520 fob and not fragrant variety.   Any small revival of Hom –Mali  cannot replace over-riding preference for 1121.

Nigeria

In November, Nigeria slashed “effective” import duty on non-Basmati rice from 144% to about 44% for arrival of vessels in December2013/January 2014. Export tax arbitrage with neighbouring Benin has ceased. Duty dispensation initially effected now for about two months may continue but the uncertainty looms. 

Nigeria imports 2.5 -3 million tons NBR-parboiled (PB) annually, mostly from India, Thailand, and Brazil. Direct Nigerian imports from India are about 0.8 mts in 2012-13. In addition, Nigeria’s neighbour Benin has been used as a base-country for import via Cotonou of about 0.5 mts of Indian rice to Nigeria, through cross border porous trade due to differential duty regime. Thus India has about 50% share (1.3 million tons) in Nigerian import basket that may rise to 70-75% in 2013-14 for undermentioned reasons.

Indian 5% (PBR) costs $400 fob vs 455 of Thailand. Prominent Nigerians buyers are keen to secure Indian arrivals before the deadline as matter of precaution, though this dead line may be extended. Indian shippers are in a hurry to despatch PB rice and even diverting their cargos on high seas from Cotonou to Lagos. About a quarter million tons is contracted additionally by prime Nigerian importers in end November-early December 2013 with Indian shippers.

Bangladesh

Government of Bangladesh (GOB) needs import of 0.5 mts of rice immediately of 15% PB variety. India is commercially and strategically well placed to meet this demand. But neither GOB knows how to buy economically and efficiently nor GOI is in a position to conclude G to G deal. Reasons- FCI’s stocks need up gradation and repackaging, special pricing, CIF liner out shipments and discharge port acceptance of cargo for compliance with GOB terms—which FCI/PSUs are not capable of undertaking. Past dealings of PSUs with private players on back to back basis have been controversial due to procedural reasons.

Indian prices from open market are the lowest on delivered basis to Bangladesh. GOB has no alternative but to import on tender to tender basis from private Indian suppliers where Indian bidders will compete on best market price (and not FCI)—that may often result in non-remunerative values being offered by Indian bidders and getting contracted leading to non- performance and encashment PGs. GOB is surely not in the business of encashment of bank guarantees. 

Thailand does not have significant availability of 15% brokens parbolied rice. Signing a MOU with Thailand is the easiest thing without getting needed shipments. Pakistan may not be successful in tendered business while competing with India.

All Bangladesh has to do is to follow doctrine of internationally accepted practices rather than customised tendering conditions prone to defaults and rent seeking.

In any case private cross border rice export will be undertaken by Indian trade with higher demand projections in Bangladesh.

 Indian Policy

Since 2011, Indian government has kept rice trade/export free from any conditions and encumbrances. That is why India has secured number one rank in world’s trade. Stocks of FCI remain untouched. Private market availability and dollar/rupee exchange rates have been helpful. Research in new rice varieties has added impetus. More flexibility in Iran’s rupee account will be supportive of rice and non-rice trade. Removal of recent stock limits on rice for export will also improve the sentiment.

extract from BUSINESS LINE 10.4.2014