In a bid to curb the practice of documents against acceptance (DA), which often leads to disputes about settlement of payment between importers and exporters of basmati rice, the Director General of Foreign Trade (DGFT) has come out with a notification banning DA in the trade associated with shipment of long-grained aromatic rice.
A DGFT notification said that from October 1, 2016 onwards, “Exports of basmati rice shall not be permitted on the basis of DA unless such export is covered by bank guarantee and Export Credit Guarantee Corporation (ECGC) guarantee.” As reported by FE last month, in the fiercely-competitive basmati rice exports trade, small players, in order to increase the volume of shipments, often send rice consignments to importers who use this unsecured credit to their advantage.
Exporters say that because of DA, basmati rice trade has become a buyers’ market. “Often, consignments are not lifted from the port by importers and thus, the price has to be renegotiated leading to lower realisation,” Vijay Setia, a leading exporter, said.
Trade sources said that because of the practice of DA mostly being carried out by small exporters, the country’s basmati rice shipment has seen a 29% fall to R22,714 crore in FY16, from a record R29,291 crore reported in FY14. However, the volume of basmati exports has risen from 3.7 million tone (mt) to more than 4 mt in the same period. According to an All India Rice Exporters Association (AIREA) official, other rice-exporting countries like Pakistan, Vietnam and Thailand do not allow DA transactions.
The bigger basmati rice exporters at present use the system of ‘letter of credit’, where the importers instruct their bank to pay exporters under the specified conditions mentioned in the original documentary credit.
Through the new notification, the DGFT has also asked exporters to ship basmati rice to the European Union (EU) and Russia only after pre-shipment quality inspection by eight designated labs, including Shri Ram Institute of Industrial Research (both Delhi and Benguluru branches) and Delhi Test House.
Trade sources said that often, consignments are rejected by importing countries in the EU because of higher pesticide-residue levels. The DGFT notification also stated that exports of empty printed gunny bags with marking indicating the product being ‘Indian basmati rice’ are not permitted except when exported along with the consignment of basmati rice.
Meanwhile, the export of basmati will now be permitted through land customs stations on the India-Bangladesh and India-Nepal borders subject to registration of quantity with the DGFT.
India has an around 85% share in global basmati exports while the rest is contributed by Pakistan. Countries such as Iran, Saudi Arabia and the UAE are the biggest destinations for the country’s aromatic and long-grain rice.