WHAT COURSE MUST INDIA'S RICE IMPORT TAKE?

WHAT COURSE MUST INDIA'S RICE IMPORT TAKE?

 FINANCIAL EXPRESS 03.09.2014

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RICE IMPORT FOR TRIPURA -MIZORAM A CHALLENGING TASK.

  An opportunity of $450 million for foreign rice bidders.

For the first time FCI is compelled to import rice for North Eastern states of Tripura and Mizoram owing to temporary interruption in railway lines rather than lack of availability of rice. Monthly consumption of these two states is about 40-50000mt per month or half a million ton per annum.

Railways are commencing gauge conversion of 220km track from Assam to Agartala (Tripura) from 1^st October 2014 while highways are also in shoddy state.   Imports for next two years—about one million tons-- through alternative route is a necessity rather than an option. Also due to absence of trucking worthy cross border routes, import may have to be diverted through Chittagong port (Bangladesh).

Present cost of procuring Indian rice is Rs 2755/qtl and despatch expenses are Rs 3200/qtl  to Tripura from North or south of India. It totals Rs 59550/mt or  about $975/mt as against $ 375-385/mt landed value of 25% broken Myanmar rice if supplied through Yangon port to Chittagong.  After accounting for unloading at Chittagong, transit storage, shortage, demurrage, road transport of 200km to Agartala (Tripura), financing charges etc. it should not cost more than $450 -$460/mt delivered at FCI depot in Agartala. Half a million import will be approximated at about $225 million (Rs 1370crore) per year vs Rs 2977 crores under local arrangements.  Apparent cost saving is 55%. But it is going to be logistical and procedural nightmare to handle this import.

FCI is attempting to engage three PSUs (PEC/MMTC/STC) for this import while they are not well versed for the scope of work involved.  Normally these PSUs finalise bids, contracting and shipments to Indian shores, hand over grains to FCI and transfer payments to foreign suppliers.  But in this case Indian PSUs may not be able to deal effectively with customs/phyto-authorities of Chittagong, handling agents and transporters of Bangladesh, who can be very tricky and manipulative. Port authorities in Chittagong can delay berthing/discharging vessels for India bound cargo due to their own local priorities.  Trucks can be in short supply as 25000 mt parcel requires 2500 trucks (about 10 mt per truck). Agreements by rice handling agents or transporters may be breached.  Pilferages may be attempted both during transit storages and road transportation. Even Government of Bangladesh’s (GOB) own wheat import have 2%-3% short-landing as routine occurrence, for which they deduct payments of shippers. 

There is no Government company in Myanmar who can transact 0.5 to 1 million tons of rice; private players of Myanmar lack export financing and are happy doing container business. Myanmar annual rice export is around 850,000 tonnes. China is currently major importer of their rice. If India chips in with its annual demand of 500,000 tonnes, rice prices can witness steep rise. FCI may therefore include other origins like Vietnam, Thailand, and Cambodia for evaluation of bidding and provide an option to supply these origins if commercial feasibility from Myanmar is eroded.       

International rice traders who can participate in this import are based in Singapore or Dubai or Bangkok. But will they be ready to undertake comprehensive operation for shipping the rice from Myanmar or elsewhere, clearance at Chittagong and then arranging despatches to Tripura at “fixed cost” to FCI/PSUs?  That alternative must also be explored.

 

There are three options for the Government--- First,-Import through PSUs if they are prepared to perform totality of operation themselves by disbursing actual expenses incurred by them;  Second let PSU configure the bidding process where the foreign suppliers takes the full obligation at a “fixed price” for origination at Mynamar or elsewhere for delivery at Agartala, build in their risk premium for Bangladesh and PSUs disburse the amount to them in two stages as suggested in the chart; Third, FCI issues a global tender in which PSUs and other foreign sellers bid and compete for delivery at Tripura from any origin and any route at a fixed price. The assurance of Bangladesh giving transit facilities to Indian Government must form integral part of the tender document.  The second alternative may be more practical.

The combined business of about two years is about $450 million apprx and its extension to third year cannot be ruled out. The quantum and pace of import tendering depends upon urgency at Tripura and commercial considerations. Will overseas rice traders bite the bullet??