The Hindu Business Line : Export tax on basmati beginning to bite

New Delhi, Nov. 27 The Centre’s policy of clamping an export duty of Rs 8,000 a tonne on basmati rice shipments, over and above a minimum export price (MEP) stipulation of $1,200 a tonne, is now clearly beginning to bite.

But the bite, while causing pain to Indian exports, is also turning out to be rather sweet for the Pakistani basmati industry.

Official data from the European Commission’s Directorate-General for Agriculture and Rural Development shows total imports of basmati rice from India by Europe (including the UK) have fallen from 2,85,037 tonnes in 2006-07 to 2,68,991 tonnes in 2007-08 (September 1 to August 31). The same period, however, saw a more than two-and-a-half times jump in Pakistani shipments to the region from 38,567 tonnes to 98,923 tonnes. More recent data, for the period from September 1 to November 11 this year, reveals Pakistani exports at 9,038 tonnes, against India’s 20,634 tonnes.

In other words, the share of Pakistani basmati on European supermarket shelves has risen from less than 12 per cent two years back to over 30 per cent now. “We have been completely out-priced, partly on account of the much higher depreciation of their currency.

The export tax has further worsened matters,” said Mr R.S. Seshadri, Director of Tilda Riceland Ltd, India’s largest basmati exporter to Europe.

Currency movements

The Pakistani currency has since the start of this year fallen from Rs 61 to Rs 82 to a dollar, which is much more than the corresponding decline in the Indian rupee from Rs 39.4 to Rs 49.9 against the dollar.

The weaker currency has enabled Pakistani exports to quote their ‘Super’ basmati at $950-1,000 a tonne, free-on-board, against the $1,350-1,400 a tonne for Indian Pusa Basmati-1 and $1,650-1,700 a tonne for traditional premium varieties.

“A premium of $100-150 over Pakistan is sustainable, but not $400-plus. And of this, almost $200 is due to the export tax,” Mr Seshadri noted.

The MEP of $1,200 a tonne was imposed from April 1, with the export tax of Rs 8,000 being effective since May 10.

The impact of these can be seen from the fact that total monthly exports of basmati, which stood at 261,320 tonnes in April, slowed down to 76,293 tonnes in May, 115,049 tonnes in June, 138,350 tonnes in July, 115,165 tonnes in August and 127,220 tonnes in September.

New kharif crop

But even this data does not capture the trend fully. The real crisis is on account of the new 2008 kharif crop, which is still being marketed and for which orders are barely forthcoming.

So far, importers have placed orders for just around 50,000 tonnes of Pusa Basmati-1 and traditional basmati varieties, which is a tenth of what was placed by this time last year.

“The only orders for the new crop has come for Pusa-1121 (recently declared a basmati), which is about 2.5-3 lakh tonnes. And this is because of the variety enjoying a niche market in Iran,” according to Mr Anil Kumar Mittal, Chiarman and Managing Director of the Rs 1,000-crore KRBL Ltd.

But even in the case of Pusa-1121, there are reports of Iranian buyers facing payment problems and seeking deferment of shipments or renegotiation of prices.

The buyers had initially contracted about 80,000 tonnes at about $1,250 a tonne, while the subsequent orders were for higher prices of $1,350-1,400 for 50,000 tonnes and $1,500-1,600 for 100,000 tonnes.

Trade sources say that the Iranians are now willing to take delivery of only the initial orders and are trying to wriggle out of the purchases made at the higher prices.

“A lot of containers are stuck at Dubai and Bandar Abbas ports, for which huge demurrage charges are being incurred,” they added.

Mr Mittal said the least the Centre could do now was to scrap the export tax.

“Otherwise, we will simply be handing over the global basmati market on a platter to Pakistan,” he warned.

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DGFT effects partial relaxation of ban on non-basmati rice exports
eGoM to decide on lifting ban on premium non-basmati rice exports

More Stories on : Rice | Exports & Imports | Taxation

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