The Hindu Business Line : Basmati export duty difficult to absorb, says Saudi chamber

The fallout From next-year, the Saudi importers would be forced to look for other supply sources. Indian exporters are unable absorb the additional duty because of their thin margins. Saudi Arabia imports about 6.25 lakh tonnes of annually, of which Indiaships around 5.75 lakh tonnes.

Suresh P. Iyengar

Mumbai, May 16

The Riyadh Chamber of Commerce and Industry, Saudi Arabia, a major importer of basmati rice, has communicated to the Indian Government to reconsider $220 atonne duty on basmati rice export.

Mr AbdAllah A BalSharaf, Chairman, food items committee, in a letter to the Indian Ambassador in Riyadh, said, "All the Indian exporters have informed that they are not in a position to absorb this additional burden because they had as such concluded the contracts at very thin margins. They have intimated in clear terms that this additional burden of $220 per tonne must be borne by the Saudi importers, failing which they will not be able to honour the contract."

A copy of the letter has also been sent to the Union Ministers, Mr P. Chidambaram, Mr Kamal Nath and Mr Sharad Pawar.

FALL-OUT

The Chamber said the circumstances were so critical that neither the Saudi market nor the Indian exporter could absorb the duty. The only recourse left for Saudi importers was to resort to the litigation route, which would be to nobody's benefit.

The serious fall-out, the communication said, would be from next-year when the Saudi importers would have no option but to look out for other supply sources.

SAUDI IMPORTS

Saudi Arabia imports about 6.25 lakh tonnes of basmati annually, out of which India ships around 5.75 lakh tonnes.

The first lot of about three lakh tonnes import was concluded by the Saudi buyers at an average price of $1,350 a tonne for parboiled and $1,450 for raw basmati. By December end 2007, Indian basmati was being quoted at $1,550-$1,600 a tonne. The Saudi Arabia Government stepped in and announced a subsidy of $266 a tonne on import of basmati rice.

PRICES CLIMB

Between 2000 and 2006 basmati prices ruled around $600-$700 a tonne. However, the prices started climbing and in October 2007, they went up to $1,000-$2,000 a tonne.

The current contracts were concluded by the Saudi buyers with Indian exporters in October 2007. Indian exporters say they are not in a position to absorb this addition duty because of their thin margins. The same is the case with Saudi buyers, who are seeking government support, because the market cannot absorb the high prices.