INDIA DOMINATING THE RICE EXPORT MARKETS -FINANCIAL EXPRESS 22ND JUNE 2015

DOMINATING THE RICE EXPORT MARKETS -FINANCIAL EXPRESS 22ND JUNE 2015
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INDIA CONTINUES TO DOMINATE GLOBAL RICE TRADE

Tejinder Narang

If the probability of deficient monsoons does not cast a negative spell on Indian summer crops (or assuming that Skymet’s forecast is proved right) and rice production stays around 103 million tons (mts), India can again maintain top rank in world rice trade by shipping out about 12 mts in 2015-16. An adverse export performance by India can rattle worldwide rice trade with extreme volatility and exorbitant prices. 

 India has been top exporter in rice’s global trade of about 42 mts by averaging around 10.5-11 mts (eq.to 25% of world trade) annually during last four years (since 2011). The sustainability in rice exports— the only commodity with competitive edge internationally as compared to other Indian agro commodities—is the resultant outcome of combination of external factors, dynamics of domestic market, hybridization of paddy and efficient execution of contracted business both form East and West coast ports of India. Thailand has been trailing India by a small margin in last two years, while India is also exposed to competition from—Vietnam, Pakistan, Myanmar, and Cambodia. 

India primarily caters to Middle East/ Africa for non-Basmati and EU/ USA for Basmati variety. Dubai has emerged as a key trading hub for financing and facilitating payments especially for Africa.  Indian exports are undertaken by medium sized private companies from open market, without any export subsidy or Government’s intervention. No MNCs or PSUs or mega corporates are engaged in this business. After prohibition on exports was revoked in 2011, FCI’s stockholdings remain untouched. There is no MEP (minimum export price) or registration requirements that enable ease of doing business.

CHINA IGNORES INDIA

China’s current rice imports are about 4 mts in 2014-15, up from 0.5 mts in 2010-11, and it has kept Indian Non-Basmati rice at an arm’s length. Chinese supply-demand gap is filled by official and unofficial imports from Thailand, Vietnam, Pakistan and Myanmar, though recently grey market access through land route is attempted to be blocked. China’s escalating import demand due to water conservation measures and higher cost of paddy will continue to increase in the near future and that will keep South-Eastern origins (Vietnam and Thailand) well supported for consumption of their production, which is a net advantage to India for pricing and limiting trade rivalry. At political level Indian Government’s efforts are on for induction of non-basmati rice into Chinese procurement system.

THAI EFFECT

 Thai Government messed up their entire rice matrix through their modified “paddy pledging scheme” of 2011 by giving farmers values 50% above market price for political populism that resulted in accumulation of 18 mts of rice equivalent to 43% of world rice trade; pushed price levels unrealistically way above international quotes including those from India. Though this scheme was wound up in 2014, it depressed Thais booming exports from 10 mts in 2010-11 to 7 mts in 2011-12 while causing severe collateral  long term damage to rice quality, despite prices having crashed to tradable levels by $200 mt (from $580 in 2011 to $380 fob now). Some lessons can be learnt by India that abnormal increase in MSP with dedicated procurement can be counterproductive. Out of 18 mts of pledged inventory-- 10 mts is to be reprocessed, 6mts gone irreparably bad/unfit for human consumption and only 2 mts could be sold (USITC report of April 2015). Thus international buyers suspect Thai quality. It has simultaneously generated goodwill for Indian rice with enhanced access/success abroad. 

               

IRAN’S INTEREST

Other  external developments were-- USA/UN sanctions against Iran in 2010-11, opening of an Indo-Iran rupee account, commercial exploitation by Iran of high yielding Pusa 1121 Basmati rice developed by IARI, which is 33% cheaper (about $1000-1200fob) than conventional Basmati rice($1600-1800 fob). Pusa 1121 has exceptionally long grain length of about 8mm with elongation characteristic of 25mm upon cooking. About 1.4 mts were shipped out in 2013-14 vs 0.6 mts in 2011-12 to Iran which proved highly remunerative both for the trade and farmers. Though Iran notified a general ban on Indian imports in 2014-15 due to excessive imports, it turned out to be “restrictive” trade between “select” importers and exporters with overall exports touching around 0.95 mts. Other Middle Eastern nations—Saudi Arabia, Kuwait, Yemen, UAE are also keen to procure more of Pusa 1121 rice. Total exports to Middle East are about 4 mill tons.

PULL FROM AFRICA

West African market (Nigeria, Senegal, and Ivory Coast) and South Africa of about 3-3.5 mts per annum are hooked onto 5% parboiled variety and 100% brokens parboiled rice. No other origin, except Thailand, can “efficiently” service parboiled requirement. Thai Inconsistent quality, higher prices and freight for Africa are favourable for growth of Indian Parboiled rice Industry.

DOMESTIC PRICING

India’s MSP of non-basmati paddy is about $224/mt. All other origins except Pakistan are costlier than India. Furthermore, levy procurement by state governments stands abolished in 2014-15 which has enhanced market availability. FCI is trying to auction 25% broken rice (raw/parboiled) at OMSS of Rs 23/kg while in open market 5% brokens parboiled can be bargained at Rs 20-21/kg. There are virtually no takers for FCI stocks. This evidences market comfort in the supply side.  There are multiple varieties on offer like IR36, IR64, 1001,Swarna, Sona Masuri, Ponni samba Parmal, P4 etc and that gives options for transacting the deal at right prices. Indian grain is available throughout  year even from West Bengal, Bihar, Chhattisgarh, Odisha, and Jharkhand in addition to other growing regions. Rice is not traded in any future exchange and thus there is nil scope for open speculation or price rigging. 

          

India’s presence in global rice trade is a great stabilizing force.   Exports support better price realization for paddy farmers; Basmati is a product of specific GI (geographical identification) and is highly remunerative. India’s absence/decline from Non- Basmati rice in international trade will spike prices more than $1000/mt fob (currently $350-400/mt) especially when Chinese appetite for rice is expanding. Thai Jasmine (aromatic) rice may touch $3000/mt fob (now at $850-$900) if our Basmati exports drops significantly. Hopefully that state of affairs will not arise despite poor monsoon due to more than sufficient carry- in inventory available with Government and in Indian markets.

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A SAMPLE NEWS OF THAI RICE AUCTION DTAED 16TH JUNE 2015