Wednesday, August 9, 2017


Bangladesh is experiencing severe scarcity of rice this year. Government of Bangladesh (GOB) initially determined “import demand” of 1.2 million tons (mt) of rice which later escalated to 1.5mt due to crop losses, caused by heavy floods in the country.  75% requirement of Bangladesh is of parboiled (PB) rice while balance 25% is of white rice (WR).
After 2011, it is the first time in May 2017 that GOB is seeking supplies from Vietnam, Thailand and Cambodia on G to G (government to government) basis by dispatching official delegations and simultaneously issuing import tenders of 50000 mt each.  Five tenders have so far been opened. No serious attempt appears to have been made by GOB with Indian Government to cover their requirements from India on G to G basis. Some shipments of Indian rice- about 1.5 lakh mt - have been made through land/sea routes by private trade. Meanwhile rice prices in Dacca—have risen from 28taka/kg to 45 taka/kg—higher by 61% in last three months. (See chart)
India is, not only, the world’s largest exporter of rice of about 11-12 mt annually (both basmati and non-basmati) it also enjoys supremacy in global PB rice trade which is the major demand component of Bangladesh. Logistically too India is a neighboring country; much closer than Vietnam, Thailand and Cambodia; cargo can reach same day to Bangladesh via land route or less than 3-4 days through sea. India can thus offer prices on delivered (CIF) basis which other bidders may not be able to match for same quality. It seems that GOB has not done serious recce and thus they are contracting rice on customized and elevated prices, rather than market prices, under G to G deal done so far.   
Graphic below indicates that G to G deal with Vietnam (annual rice export 5-6 mt) concluded in May 2017 of 0.2mt for 5% broken PB rice is priced at $470/t CIF which is much higher than the PB rice sourced by GOB against their 1st tender of May 2017 at $427.85 /t CIF— cheaper by about $43/t.  It is well known that Vietnam is an inefficient producer of PB rice of limited scales.
 Likewise 50000 t, 15% brokens WR contracted at $430/t CIF from Vietnam under the official deal is higher by $23/t or $406.48/t CIF. G to G deal is expensive—while tendered supplies are substantially cheaper.  Has Vietnam been able to make deliveries faster than those awarded against tenders is unclear. Five tenders amply reveal that PB rice for Bangladesh ranges around $ 420-$440/t CIF.
GOB also had extensive negotiations with Thai counterparts twice but no conclusion could be arrived at.  According to trade sources, Thais want to do business on FOB basis –that is-- Thai suppliers do not want to undertake obligations of hiring vessels and for being held liable for claims of quality and quantity at discharge port. GOB perhaps cannot deviate from the established procedure of CIF contracting and thus discussions remained inconclusive. Thais too indicated exorbitant values-- even higher than Vietnam.
Another MOU is reportedly signed by GOB with Cambodia (around end July-early August2017) to import one million tons rice within five years. Pricing of rice, if any, is not in public domain.  Long term understanding in commodity trade seldom materializes.  Cambodia’s official export is about 0.5 mt, while balance 0.6mt is cross border unofficial trade with Vietnam and Thailand.  Cambodia is not adept in shipping break bulk cargos and makes shipments through containers. It will be na├»ve to seek 0.2 mt rice in a year from Cambodia on break bulk basis
It is true that while GOB approached GOI in the past (during UPA rule) to augment their supplies through FCI but FCI adopted an inflexible stance of delivering rice on as is where is basis and that too at Indian ports only. This perhaps discouraged GOB from taking any proactive approach for Indian rice under G to G business.  Also FCI’s rice export through PSUs is not feasible as this entails additional operations like re-bagging, printing on bags, cleaning, up- grading (from 15% brokens to 5% for PB rice and to 15% from 25% for WR), transit losses etc. which PSUs cannot undertake. 
The only way a commercial transaction through PSUs can be structured is by having private partnership with rice millers/traders who have demonstrated past performance of undertaking exports in past 3-4 years. The PSU too should have exported rice commercially. GOB should be able to approach through diplomatic channels for such a deal through Indian PSUs.  Market players indicate that some discussions of GOB with Indian PSUs have taken place but then abandoned.
It is also feasible that if private trade from India is willing to match tendered price in the current bidding then such a bidder could also be considered for additional 50000mt or more.
It is not sufficient to have paper contracts or low/high prices but such contracts and prices should be able to translate into physical deliveries of rice for the people of Bangladesh. Rice prices in India are likely to soften in next 60days when new paddy arrives. Estimates of Indian rice production are 108-110mt. GOB may ponder if Indian grain/agencies can meet their requirements as it is doing for 1.25 billion population of this subcontinent and other countries of Asia, Africa, Europe and USA. 



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