India could sign a deal as early as this week to supply one million tonne of non-basmati rice to Indonesia to help it tide over a local shortage, reports Banikinkar Pattanayak in New Delhi.
Negotiations have been on for a government-to-government deal, in which case the grain will be supplied from official reserves. Once the memorandum of understanding is signed, this would be the highest export of rice from state-run Food Corporation Of India’s (FCI’s) reserves since 2003-04 when it had shipped out 2.78 million tonne, sources said.
For Indonesia, it will be a rare occasion when it sources rice from outside the ASEAN trading bloc, barring the exception of its recent deal with Pakistan.
While prices are being negotiated, India is interested in selling rice at the economic cost–which comprises the benchmark price paid to farmers for supplies and charges for transportation and storage, among others–to avoid losses on such exports, according to the sources.
A deal at the 2015-16 economic cost of rice will fetch India Rs 3,258 crore ($486 million), but more importantly, it will be a win-win situation for both the countries. Higher rice exports will help India, which is facing a decline in both rice as well as total farm exports. Indonesia, having struggled to finalise similar contracts with Thailand and Vietnam, seems to be keen on tapping the massive Indian grain market and diversifying import destinations.
However, Indonesia is learnt to be keen on lowering the price. According to the FCI, its economic cost of rice stood at Rs 32,580 ($486) per tonne for the common variety in 2015-16, which is estimated to go up to Rs 32,667 in 2016-17.
MMTC may be asked to supply rice from FCI’s reserves to Indonesia’s state-run Bureau Of Logistics, which handles food distribution and price control.
Both the countries are exploring the possibility of a long-term supply contract as well, although India wants to make it a non-binding one under exceptional circumstances. Apart from rice, Indonesia is also willing to enhance collaboration with India in pharmaceuticals, with a focus on generic medicine, said on of the sources.
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 the economic costs of FCI grains are much higher than prices of Thai or Vietnam varieties. For instance, the 5% broken rice quoted an average of $395 per tonne in Thailand and $371 in Vietnam last month, while FCI’s 2015-16 economic cost was as high as $486 per tonne.
Negotiations with Bangladesh around 2010-11 to supply grains from official reserves fell through due to differences over prices. A major reason for the high costs of grains has been FCI’s “dis-economics of scale”, as stated in an earlier 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 tonnes in 2004-05. As of May 1, rice stocks with FCI touched 21.32 million tonnes, much higher than the mandatory requirement of 13.58 million tonnes.
Indonesia is reported to have inked an agreement with Pakistan recently to import one million tonnes of rice at roughly $400 per tonne, to be supplied over a period of four years. However, Indian officials say our rice is better than the grain to be supplied by Pakistan to Indonesia, hence can’t be compared strictly. In case of a government-to-government deal, the State Logistics Agency (Bulog) of Indonesia will be involved along with the FCI.