Glocal rice trade: India facing the Thai challenge

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Updated: November 26, 2014 1:40:45 AM

Though the current estimation of Indian rice export is about 9 million tonnes, there is a glimmer of hope that rice shipments may still kiss 10 million tonnes

Had India not freely opened up its non-basmati rice export in September 2011, global prices would have escalated beyond $1,000 fob pmt versus $350-450 (due to the Thai government policy of political populism of procuring paddy at about $480 pmt—40% above the market value which upon conversion into milled rice would have cost $1,000 fob). Had India’s Pusa 1121 basmati variety been absent from the global market, fragrant rice values would have crossed $3,000 fob pmt versus $1,000-1,500 fob. The world and the WTO should know this and acknowledge this specific Indian contribution.

India’s annual exports of about 10 million tonnes have contained precipitative fall in paddy/rice prices locally while keeping a lid on global values and earning $7-8 billion per annum. This country has stabilised rather than distorted world rice trade. The government is a non-player; all international transactions are handled by privates with market-centric approach. This is the force of free trade.

Rice-Story

Domestic churning

The recent domestic bearishness in rice/paddy prices both for non-basmati and basmati varieties manifest perfect churning of market forces. In the non-basmati segment, the government is consciously targeting lower paddy procurement by pruning levy obligation from 75% to 25%, shunning states which offer bonus and keeping minimal hike in MSP. This policy tweaking should make available 10 million tonnes more rice in the market, thus softening prices, supporting exports and stimulating demand expansion.

Basmati strains of Pusa 1121/1509 are being lapped by farmers/millers/traders of Punjab, Haryana, Uttar Pradesh and Madhya Pradesh for being extra remunerative than non-basmati. It also, inter alia, establishes that private entities in the basmati chain—producers, millers, traders, exporters—have acquired enhanced capacities and financial muscle to manage high-value paddy/rice. Moreover, as and when basmati sowing consumes expanded acreage, non-basmati output is reduced. This saves water as a precious resource while FCI/state agencies have to procure and store less of non-basmati rice. This results in cost and subsidy savings for the government.

In 2013-14, Indian farmers reaped 60% extra profits by selling the Pusa basmati at around R3,500-4,500 per quintal versus R2,100-2,800 per quintal in 2011-12. This prompted overproduction in 2014-15 and, thus, prices today are back to the level of 2011-12. After the bull-run of 2013-14, price moderation is natural. It will be inappropriate to comment that farmers are losing money in basmati or Pusa basmati. Loss of profit cannot be deemed loss. It is still a profit.

Rice inflation is down to 7% in September 2014 form a high of 13% in April 2014, notwithstanding scare of lower crop and less than normal monsoon.

Exports

Another factor attributable to lower prices in Pusa basmati is Iran slowing down Indian rice imports in 2014-15, partly owing to lack of integrity in export transactions last year (https://goo.gl/WG6uvj). Approximately 1.4 million tonnes of Pusa 1121 parboiled rice shipments were made in 2013-14, at around $1,250-1,400 cif pmt. Cargo rejections caused by blending cheaper variations, settlement of quality claims, etc, also compelled Iran for mandating “source registrations” with Iranian authorities and pre-shipment analysis from “select” surveyors as per “executive instructions” of the Agricultural and Processed Food Products Export Development Authority (APEDA) in June 2014. To satisfy its demand pull, Iran will again come up with somewhat similar requirement of 1.4-1.5 million tonnes from January 2015. The price realisation of Pusa 1121 may be lower this time, at around $900-1,000 pmt on landed basis (cif), both due to depreciation of the rupee against the dollar (62 or even beyond) and deferred procurement. Hopefully, contractual compliance will facilitate smoother trade.

Saudi buyers of basmati rice, who procure about 0.8 million tonnes annually, have full access to India’s market view and tumbling prices. They are adept at scratching bottom of prices due to cut-throat competition created by rival suppliers. Basmati exports are a perfect case study where India competes against India. Other profitable markets for basmati shippers are the US and the EU, provided all regulatory conditions are complied with.

There is demand suppression in Iraq due to West Asian conflict and bureaucratic reshuffle in Iraqi Grain Board. Exporters are exposed to high risk. But its food need has to be covered directly or indirectly and offers an opportunity for Indian rice exports.
India enjoys worldwide supremacy in basmati rice export of 3-4 million tonnes per annum. The competition in non-basmati “parboiled” rice (India exports about 2 million tonnes) is also limited. India competes with Thailand, Vietnam and Pakistan for shipments of 5-7 million tonnes annually for non-basmati grains in the Middle East and African markets.

Another distinctive observation is that the bulk of non-basmati rice suppliers/shippers are now based in Andhra Pradesh, Telangana, Chhattisgarh, Jharkhand, Bihar and Tamil Nadu from where the port logistics to the east coast of India (Kakinada, Krishnapatnam, Chennai and Vishakhapatnam) are cheaper both for bulk and container shipments. Basmati rice’s shippers are primarily based in the north and west India and use west coast ports (Mundra, Kandla and Mumbai). Rice suppliers/shippers/exporters thus span virtually all over India.

Meeting competition

Thais have terminated their arbitrary pricing adventurism after incurring losses of $31 billion up to early 2014. Exports prices are now market-determined. From a high of $580 fob in 2012 for 5% broken rice, their quotes dropped to $450 a year ago and now are competing with India in the $410-420 range. Competitive pressures are, thus, hammering international trade. India’s rank is slipping to number two from the number one, while Thailand attempts to regain the top position.

Chinese import of Thai rice is gaining momentum where India is absent by selective exclusion. China is also buying non-basmati from Pakistan in preference to India. Unless some diplomatic initiatives are taken with China for acceptance of our non-basmati varieties, we will be at a disadvantage.

Though the current estimation of Indian rice export is about 9 million tonnes, there is a glimmer of hope that rice shipments may still kiss 10 million tonnes because increased paddy arrivals in market will keep prices soft; dollar values will decline/correct to the extent of rupee deprecation; Iran may be back in the market; and Nigerian demand will remain stronger due to forthcoming elections in that country.

The author is a grains trade expert

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