The basmati rice industry is expecting a rebound in second half of financial year 2016-17 and 2017-18 fiscal with demand driven improvement in realisation and low inventory prices.
The basmati rice industry is expecting a rebound in second half of financial year 2016-17 and 2017-18 fiscal with demand driven improvement in realisation and low inventory prices, says an ICRA report.
According to Deepak Jotwani, Assistant VP, ICRA, basmati rice has witnessed growing demand in the domestic market for the last few years. “The export demand, which has remained subdued for the last two years, is expected to witness a pickup in the coming months when a majority of the export orders are received.
“This is expected to push up the realisations in second half of financial year 2016-17 and 2017-18 fiscal. Most of the large exporters, who are holding relatively lower priced inventory, are expected to benefit from this. While paddy prices have inched up in the current procurement season, this would be comfortably covered by growth in realisations,” he said.
In the past two years, the basmati rice industry has been under financial stress on account of excess paddy supply and weak international demand, leading to a sharp decline in realisations.
The average export realisations declined from R77,988/MT in financial year 2013-14 to R56,149/MT in financial year 2015-16, the report said.
However, there has been some improvement in demand in first quarter of financial year 2016-17 also reflected by the increase in export realisations to R59,247/MT.
For the remaining period, the export demand is expected to improve further, with Iran also expected to join the order booking.
Further, steady domestic demand growth would add to the overall improvement in realisations for the industry, ICRA said. Paddy production is expected to be lower in financial year 2016-17 by 15-20%.
Thus, paddy prices have opened higher by around 20% in the current procurement season starting October 2016 and are expected to remain firm. Nevertheless, this is expected to be outweighed by the growth in realisations in second half of financial year 2016-17 and 2017-18 fiscal, the report said.
“ICRA expects the export volumes in financial year 2016-17 to be around 3.99 million MT (almost similar to the volumes in financial year 2015-16). However, the improvement in realisations is expected to push the values of exports to around R23,000 crore in financial year 2016-17 as against R22,718 crore in financial year 2015-16.
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For financial year 2017-18, ICRA estimates the volume and value of exports to be around 4.03 million MT and R25,800 crore respectively,” Jotwani said.
The Centre’s recent demonetisation move has also resulted in a cash crunch in the system, thereby leading to deferment of paddy procurement by some millers/traders.
Further, given that a large part of the rice industry is unorganised, many buyers may witness reduction in their buying capacity. However, this is expected to be a short-term impact and the steady demand would lead to restoration of buying in fourth quarter of financial year 2016-17, ICRA said.