Negotiations for exporting one million tonne of non-basmati rice to Indonesia from official reserves seem to be stuck, with Jakarta yet to respond to New Delhi’s call for sealing the deal at the earliest, sources told FE.
Commerce secretary Rita Teaotia had said in June that both the nations were on the verge of signing a government-to-government deal. This would have been the highest export of rice from state-run Food Corporation of India (FCI)’s reserves since 2003-04 when it had shipped out 2.78 million tonne.
“Despite India’s reminders for clinching the deal, Indonesia is silent on the issue,” said a source. However, none of the countries has formally closed channels of negotiations, a senior industry executive told FE.
Scrapping of the deal would be a setback for both the nations. For Indonesia, India was supposed to act as a key source of rice from outside the ASEAN trading bloc (barring the former’s recent deal with Pakistan).
Having struggled to finalise similar contracts with Thailand and Vietnam, Indonesia had expressed interest on tapping the massive Indian grain market and diversifying import destinations.For India, a deal even at the 2015-16 economic cost of rice would fetch
R3,258 crore ($489 million) and help it regain some of the lost momentum in trading of non-basmati rice.
While Indonesia hasn’t yet specified the reason for the delay, India’s similar deals with other nations fell through on the issue of prices in the past.
FE had earlier reported that India’s negotiations with Bangladesh around 2010-11 to supply grains from official reserves did not fructify due to differences over prices.
According to the FCI, its economic cost of rice stood at R32,580 ($489) per tonne for the common variety in 2015-16, which is estimated to go up to R32,667 in 2016-17.
The STC was to supply rice from FCI’s reserves to Indonesia’s state-run Bureau of Logistics, which handles food distribution and price control for that country.
Despite massive stocks, India has failed to export much from its official reserves even through government-to-government deals, mainly due to the fact that economic costs of the FCI grains are much higher compared with prices of Thai or Vietnam varieties.
For instance, 5% broken rice was quoted an average of $415 per tonne in Thailand and $348 in Vietnam in August, while FCI’s 2015-16 economic cost was as high as $490 per tonne.A major reason for high costs of grains has been FCI’s “dis-economics of scale”, as stated in a report by the Commission For Agricultural Costs and Prices.
This means as FCI’s scale of operation increases, the per unit real costs also rise, in a stark contrast with the nature of operational costs of most companies. Consequently, the country hasn’t been able to export much of
FCI rice since shipping 65,000 tonne in 2004-05. As of September 1, rice stocks with the FCI touched 16.53 million tonne, higher than the mandatory requirement of 13.54 million tonne.