RICE TRADE -INDIA FACING THAI CHLLENGE
FINANCIAL EXPRESS 26TH NOV2014
“GLOCAL” RICE TRADE—INDIA PLAYS PIVOTAL AND POSITIVE ROLE
Had India not freely opened up its Non –Basmati rice export in September 2011, global prices would have escalated beyond $1000 fob pmt vs $350-450 (due to Thai Government policy of political populism of procuring paddy at about $480 pmt—40% above the market value which upon conversion into milled rice would have cost $1000 fob). Had India’s Pusa 1121 Basmati variety been absent from the global market, fragrant rice values would have crossed $3000 fob pmt vs $1000-1500 fob. The world and WTO should know this and acknowledge this specific Indian contribution.
India’s annual exports of about 10 million tons (mts) have contained precipitative fall in paddy/rice prices locally while keeping a lid on global values and earning $7-$8 billion per annum. This country has stabilized rather than distorted world rice trade. Government is a non-player; all international transactions are handled by privates with market centric approach. This is the force of free trade.
The recent domestic bearishness in rice/paddy prices both for Non-Basmati and Basmati varieties manifest perfect churning of market forces. In Non-Basmati segment, Government is consciously targeting lower paddy procurement by pruning levy obligation from 75% to 25%, shunning states who offer bonus and keeping minimal hike in MSP. This policy tweaking should make available 10 mts more rice in the market thus softening prices, supporting exports and stimulating demand expansion.
Basmati strains of Pusa 1121/1509 are being lapped by farmers/millers/traders of Panjab, Haryana, Uttar Pradesh, and Madhya Pradesh for being extra remunerative than Non-Basmati. It also inter-alia establishes that private entities in Basmati chain—producers, millers, traders exporters-- have acquired enhance capacities and financial muscle to manage high value paddy/rice. Moreover as and when Basmati sowing consumes expanded acreage, Non-Basmati output is reduced. This saves water as a precious resource while FCI/state agencies have to procure and store less of Non- Basmati rice. This results in cost and subsidy savings to the Government.
In 2013-14 Indian farmers reaped 60% extra profits by selling Pusa Basmati at around Rs 3500-4500 per quintal vs Rs 2100-2800 per quintal in 2011-12. This prompted over-production in 2014-15 and thus prices today are back to level of 2011-12. After the bull-run of 2013-14, price moderation is natural. It will be inappropriate to comment that farmers are losing money in Basmati or Pusa Basmati. Loss of profit cannot be deemed loss. It is still a profit.
Rice inflation is down to 7% in September 2014 form high of 13% in April 2014, notwithstanding scare of lower crop and less than normal monsoon.
Another factor attributable to lower prices in Pusa Basmati is the Iran slowing down Indian rice imports in 2014-15, partly owing to lack of integrity in export transactions last year. The link http://goo.gl/WG6uvj explains all. (Approximately 1.4 mill tons of Pusa1121 parboiled rice shipments were made in 2013-14, at around $1250-$1400 cif pmt.). Cargo rejections caused by blending cheaper variations, settlement of quality claims etc also compelled Iran for mandating “source registrations” with Iranian authorities and pre- shipment analysis from “select” surveyors as per “executive Instructions” of APEDA in June 2014. To satisfy its demand pull, Iran will again come up with somewhat similar requirement of 1.4-1.5 mts from Jan2015. Price realization of Pusa 1121 may be lower this time at around $900-1000/mt on landed basis (cif) both due to depreciation of rupee to 1$=62 (or even beyond) and deferred procurement. Hopefully contractual compliance will facilitate smoother trade.
Saudi buyers of Basmati rice, who procure about 0.8 mts annually have full access to India’s market view and tumbling prices. They are adept in scratching bottom of prices due to cut throat competition created by rival suppliers. Basmati exports are a perfect case study where India competes against India. Other profitable markets for Basmati shippers are USA and EU, provided all regulatory conditions are complied.
There is demand suppression in Iraq due west Asian conflict and bureaucratic reshuffle in Iraqi Grain Board. Exporters are exposed to high risk. But its food need has to be covered directly or indirectly and offers an opportunity for Indian rice exports.
India enjoys worldwide supremacy in Basmati Rice export of 3-4 mts per annum. Competition in Non- Basmati “parboiled” rice (Indian exports about 2 mts) is also limited. India competes with Thailand, Vietnam, and Pakistan for shipments of 5-7 mts annually for Non-basmati grains in Mid –East and African markets.
Another distinctive observation is that bulk of Non-Basmati rice suppliers/shippers are now based in Andhra Pradesh, Telengana, Chhattisgarh, Jharkhand, Bihar and Tamilnadu from where the port logistics to East Coast India (Kakinada, Krishnapatnam, Chennai and Vishakhapatnam) are cheaper both for bulk and container shipments. Basmati rice’s shippers are primarily based from North and West India and use West Coast India ports (Mundra, Kandla, Mumbai). Rice suppliers/shippers/exporters thus span virtually all over India.
Thais have terminated their arbitrary pricing adventurism after incurring losses of $31 billion up to early 2014. Exports prices are now market determined. From high of $580 fob in 2012 for 5% broken rice, their quotes dropped to $450 a year back and now competing with India at$410-$420 range. Competitive pressures are thus hammering international trade. India’s rank is slipping to number two from the number one, while Thailand attempts to regain top position.
Chinese import of Thai rice is gaining momentum where India is absence by selective exclusion. China is also buying non-basmati from Pakistan in preference to India. Unless some diplomatic initiatives are taken with China for acceptance of our Non-Basmati varieties, we will be at a disadvantage.
Though the current estimation of indain rice export is about 9 mts, there is a glimmer of hope that rice shipments may still kiss 10 mts because increased paddy arrivals in market will keep prices soft; dollar values will decline/correct to the extent of rupee deprecation, Iran may be back in the market and Nigerian demand will remain stronger due to forthcoming elections in that country.