The rice industry is one of the few outliers in Indian economy which will not only be able to break the pessimism of coronavirus but also the global economic slowdown.
As India continues to experience healthy monsoon rainfall, prices of paddy are likely to fall considerably in the current financial year 2020-21. “Paddy prices are expected to fall around 17% in the current fiscal from an average of Rs 36 per kg seen last fiscal due to good monsoon and stable acreage,” a report by CRISIL Ratings said on Tuesday. Basmati companies are also in for a 100-150 bps margin boost due to lower paddy prices and stable volume demand from foreign nations, the report added. In fact, the rice industry is one of the few outliers in Indian economy which will not only be able to break the pessimism of coronavirus but also the global economic slowdown.
A rise in export demand is another reason why the rice industry is off to a good year even while many other sectors are scrambling to stay afloat due to the pandemic. The United States, the United Kingdom, the Middle East (excluding Iran), which account for more than 50% of India’s total rice exports, are creating a buffer food stock amid the pandemic. Hence, the demand for exports in these countries has increased, the report said. “Export realisation is unlikely to decline in the same proportion as paddy prices because orders from key markets continue to be strong.” Annually, India exports around 4.4 million tonne of rice. While trade tensions continue with Iran, which imports around 1.3 million tonne annually, and the exports to the country are expected to fall by 20%, the higher demand from other countries is likely to offset the Iran trade issue.
“Rigid food habits and strong preference for basmati rice will prevent downgrade to non-basmati varieties in the retail market,” the report said. The demand for rice has remained strong during lockdown, Subodh Rai, Senior Director and Head of Analytics, CRISIL Ratings said. Meanwhile, spreads between blended realisation and paddy prices are expected to improve to Rs 31 per kg as opposed to last financial year’s Rs 29 per kg. This would mean profitability of around 5.5-7.5% in this financial year.