The Hindu Business Line : Exporters may stand to lose from higher floor price for rice

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Exporters may stand to lose from higher floor price for rice

G. Srinivasan

New Delhi, March 31 The two tranche of hikes in minimum export price (MEP) for both basmati and non-basmati rice effected on March 5 and March 27 by the Union Government has much to do with retaining low-priced rice and bolstering the available stocks than making the export uncompetitive or costly, particularly to exporters of basmati and premium varieties of non-basmati rice.

However, trade policy analysts are of the view that the short-term objective of shoring up stocks would be achieved by these measures but it might also result in exporters finding their markets slipping out from their hands as the competing rice exporters from Thailand and Vietnam would be stepping up their exports to cash-in on the boom in global grain markets where the prices for premium non-basmati were still hovering in the range of $650-$750 per tonne against India’s $1,000-a-tonne MEP for the same variety.

They say that since the ban on export of non-basmati rice for a brief while in October 2007 by India which was subsequently lifted, the prices of non-basmati rice in the global market has soared from $350 per tonne to $650 per tonne, with some sales being reported in recent weeks at $750 per tonne.

Balancing foodstock

Had the authorities sought to balance the country’s food stocks in the face of dwindling pace of procurement so that food prices would not have shot up so dramatically as it is today, the government could have permitted a two-way traffic in trade i.e., export as well as import since the month of October 2007 itself when prices were much softer than it is today.

By allowing both export and import sans the policy intervention of higher MEP in stages in the case of the former or taking a decision to import rice, the country could have obtained some good quality rice in sufficient volume and in affordable prices to replenish its stocks so essentially needed for serving the public distribution system (PDS).

Even if the government decides to import rice now, it has to shell out an additional $400 to $500 a tonne at today’s ruling price. The moment the authorities go in for import of rice, the volatility in rice price would further sharply go North, they said.

The obverse side to the Government’s action of pitching MEP at higher level in its bid to retain rice for domestic consumption has unobtrusively resulted in the slowdown in rice exports from India since October last. They say that the government has failed to take a moderate view in the interests of promoting trade as also building up strategic reserves for facing the prospective vicissitudes of the global grain markets through any advance planning.

Packing norms

Some premium variety non-basmati rice exporters contend that if the government clamps ‘packing restrictions’ it could stem the outflow of low-priced coarse variety as they normally are sent in bulk packs of 40 to 50 kg to Africa, Sri Lanka and Bangladesh who use the ‘hawala’ route.

If they are subject to packing norms like 1, 5 or 10 and 20 kg ‘consumer pack’ which entails additional cost, such low-graded coarse variety would not leave the country as the economics won’t permit the operation to become viable. In the case of export of premium grade like ponni, sonar masuri and matta, the packing cost alone runs to $40-$50 per tonne as they are being supplied to NRIs and super and hypermarkets abroad.

Export duty

Trade analysts also state that the best way the government would have prevented low-grade variety of rice from leaving is slapping an export duty instead of prescribing a higher MEP which affects genuine exporters who might find themselves priced out of the market, particularly when competing exporters sell far below the MEP now.

An export duty is always resorted to restrict exports of food items which would have prevented ‘hawala’ traders of cheap-priced exporters from undertaking dubious business practices, besides bringing revenue to the Government, they say.

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