The Hindu Business Line : Export tax weakens basmati rice stocks

Mumbai, April 30 Basmati rice exporting companies’ stocks fell on Wednesday as the market reacted to Tuesday’s announcement of imposition of an export tax on the item. Kohinoor Foods Ltd lost 6.31 per cent; LT Overseas Ltd (4.93 per cent), KRBL (4.97 per cent) and REI Agro shed 2.73 per cent on Wednesday.

“More than half of their profits are from exports, so they are bound to take a hit under the new regulation,” said Mr Ashwani Agarwalla, Research Analyst, PINC Research. In a move to curb inflation and secure food supplies domestically, the Government decided to levy an export tax of Rs 8,000 a tonne on basmati rice, but brought down the minimum export price to $1,000 per tonne from $1,200.

“These companies will suffer because they have a good realisation abroad and the operating profits and revenue will get affected,” said Mr Ram Patnaik, Research Analyst, Religare Research.

Exports unviable

India’s share in the world’s rice exports was 15.8 per cent in 2005, according to the Economic Survey 2007-08. Out of the total basmati sales of the Indian companies, 20-30 per cent of the income comes from exports,” said Mr Patnaik.

Companies that have old contracts will have to fulfil them, so to that extent they will not be affected, but new contracts will definitely get affected, said analysts.

“The new tax will make exports unviable for the producers as their prices will increase and not be competitive enough in the global markets. As a result, of course, the producers will be forced to sell in the domestic markets, thus increasing food supply and thereby controlling inflationary pressures,” said Mr Ashwani Agarwalla.

Restricting exports

“This new move seems like a knee-jerk reaction (to tackling inflation); instead there should be a well-sought out long-term plan,” said Mr Amar Singh. “The exporters who have been hit don’t really cater much to the Indian markets as majority of the households in India consume the normal rice and not the premium brand of basmati,” said Mr Ashwani Agarwalla.

The World Bank and other UN Agencies have urged countries not to restrict export of food worldwide as this is leading to social unrest (causing hunger, riots and hoarding in poor countries), but still many countries are restricting their exports of food to secure food supplies domestically and curb inflationary tendencies.

India, the world’s second-largest rice exporter after Thailand, had already banned exports of non-basmati rice.

Some of the other countries that have restricted rice exports include Vietnam, Indonesia, Brazil and Egypt.

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