India?s position as the world?s largest rice exporter, exporting about 10 million tonnes (mt) per annum, is now threatened. An imminent decline in non-basmati rice exports is foreseen in 2014-15 due to steep fall in the prices of Thai rice and the rupee getting stronger. This is despite the world demand remaining unchanged, at 39-40 mt. The challenge for the new government is to rein the domestic rice inflation, currently at 14% on an annualised basis, and maintain the tempo of exports.

Currently, rice export is permitted only from private stocks while the Food Corporation of India (FCI) inventory remains untouched. The humongous rice holding of the FCI needs to be reviewed. India’s export competitiveness is rapidly eroding and surpluses from competing countries are growing. The time is ripe for the food and commerce ministries to formulate a proposal for the new government for de-stocking FCI.

FCI is very transparent in the disclosure of its holdings; about 20 mt of milled rice lies in its warehouses, as on April 1. Another 15 mt of paddy is available with the state government agencies (SGAs) in unmilled condition, a rough equivalent of 10 mt of milled cereal (taking paddy rice conversion ratio of 67% under Custom Milled Rice?CMR?agreement with rice millers). On April 1, the government had 30 mt of rice against a buffer requirement of 14 mt.

Thus, procurement is far in excess of requirement even as proper storage space remains unavailable. The catch is, millers may have actually traded 10 mt of rice, including broken grains and bran, in the open market. They will deliver rice to FCI when required after purchasing from market. Paddy shown with SGA/millers is ?stock on paper?.

Rice worth R24,000 crore (acquisition cost) or about $4 billion is streamed in the market, leading to unjust enrichment of millers while FCI has raised a loan of R20,000 crore from 62 banks to ease its liquidity crunch. The CAG report from May 2013, laid before Parliament, states, ?There are many agencies involved in storing food grains of the Central Pool which adversely affects accountability and transparency in the management of food grains.?

Food security is in abeyance. The production of rice in the eastern states has shot up. The BJP manifesto speaks of unbundling/reforming of FCI and revision of the existing PDS model. That would be long-term restructuring. In the short-term, the necessity of stock depletion and retaining India?s supremacy on export front cannot be underestimated. Thailand cannot sustain its unviable procurement programme and is burdened with about 12 mt of surplus cereal. After exhausting all avenues of marketing/selling this rice above market prices, the Thais have resigned to let the market decide the disposal. The Thai 5% broken variety fell by $150 per mt in under a year?at about $390 fob per mt?while the Indian quote is around $410. The rupee gaining strength will further raise our values.

Thailand is in a hurry to liquidate its surfeit for settlement of farmers? arrears. More downside on the Thai horizon is anticipated. India could soon be out-priced in the international market. The FAO?s April 2014 report projects 2014-15 Thai exports to be at 8.8 mt?up by 2 mt and India exports at around 9.5 mt. Soon, Vietnam may cut prices and that will further compress India?s share. The positive factors that we have are some more demand of non-basmati from Bangladesh and sustained requirements of basmati from Iran and Middle East.

FCI cannot undertake rice export directly or through PSUs, as is the case with wheat. Rice export commences with customised printing of plastic packaging (PP) bags, up-gradation of cargo from 25% to 15% or 5% broken grain, improving milling quality, blending, sortexing, etc. Such jobs are carried out by millers and traders. FCI/PSUs will get stuck at the very first step of calling/finalising tenders for PP bags.

The immediate remedy is food ministry/FCI initiating the disposal of excess stocks?8-10 mt of raw or parboiled rice?on ?as is where is basis? by weekly auctioning to millers/traders. This will deflate local prices, make exports competitive, earn revenues for FCI even as millers square up CMR transactions when FCI demands its due.

Exports will be undertaken from private stocks as usual and will remain WTO compliant. Preference may be accorded to rice held at FCI warehouses in Andhra Pradesh, Madhya Pradesh, Bihar, West Bengal, Gujarat, Maharashtra, Karnataka and Tamil Nadu because of their proximity to port towns.

Tejinder Narang

The author is a grains trade analyst