1. Dominating the rice exports market

Dominating the rice exports market

India’s presence in global rice trade is a great stabilising force

By: | Published: June 22, 2015 12:16 AM

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 tonnes (MT), India can again maintain top rank in world rice trade by shipping out about 12 MT 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 global rice trade of about 42 MT by averaging 10.5-11 MT (25% of world trade) annually during the last four years (since 2011). The sustainability in rice exports—the only one with a competitive-edge internationally as compared to other Indian agro commodities—is the resultant outcome of a combination of external factors, dynamics of domestic market, hybridisation 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 the last two years, while India is also exposed to competition from Vietnam, Pakistan, Myanmar and Cambodia.

India primarily caters to the Middle East and Africa for non-Basmati and the EU and the US 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 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 After prohibition on exports was revoked in 2011, FCI’s stockholdings remain untouched.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 are 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 MT in 2014-15, up from 0.5 MT 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, the Indian government’s efforts are on for induction of non-Basmati rice into Chinese procurement system.

Thai effect

The Thai government messed up its entire rice matrix through modified “paddy pledging scheme” of 2011 by giving farmers values 50% above market price for political populism that resulted in accumulation of 18 MT of rice equivalent to 43% of world rice trade, pushing price levels unrealistically way above international quotes including those from India. Though this scheme was wound up in 2014, it depressed Thai’s booming exports from 10 MT in 2010-11 to 7 MT 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 MT of pledged inventory, 10 MT is to be reprocessed, 6 MT gone irreparably bad/unfit for human consumption and only 2 MT 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 the US and the UN sanctions against Iran in 2010-11, opening of an Indo-Iran rupee account, and commercial exploitation by Iran of high yielding Pusa 1121 Basmati rice developed by IARI, which is 33% cheaper (about $1000-1200 fob) than conventional Basmati rice ($1600-1800 fob). Pusa 1121 has exceptionally long grain length of about 8-mm with elongation characteristic of 25-mm upon cooking. About 1.4 MT was shipped out in 2013-14 versus 0.6 MT 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 MT.

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 MT.

Pull from Africa

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

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Domestic pricing

India’s MSP of non-Basmati paddy is about $224/MT. All other origins, except Pakistani, are costlier than India. Further, 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 R23/kg while in open market 5% brokens parboiled can be bargained at R20-21/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 and P4 and that gives options for transacting the deal at right prices. Indian grain is available throughout the 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 stabilising force. Exports support better price realisation 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 $3,000/MT fob (now at $850-$900) if our Basmati exports drop significantly. Hopefully that state of affairs will not arise despite poor monsoon due to more than sufficient carry-in inventory available with the government and in Indian markets.

The author is a grains trade expert

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