The Hindu Business Line : Basmati segment faces payback time

New Delhi, Nov. 30 With more than Rs 8,000 crore invested in paddy purchases this season, and against which there are hardly any export orders, basmati millers are in deep trouble. A far cry from the killing they made last year in a seemingly ever-rising market.

ARRIVALS

During the current season since mid-September, roughly 39 lakh tonnes (lt) of aromatic paddy, worth around Rs 8,160 crore, have arrived in the mandis of Haryana, Punjab, Uttar Pradesh, Uttarakhand and Rajasthan.

Of this, the bulk comprised Pusa-1121 (17 lt worth some Rs 4,100 crore), followed by Pusa Basmati-1 (11.6 lt worth Rs 2,250 crore), traditional basmati (3.3 lt worth Rs 960 crore) and Sharbati (7 lt worth Rs 830 crore).

AUCTION PRICES

These have been bought at auction prices ranging from Rs 17,700 to Rs 21,500 a tonne in the case of Pusa Basmati-1, Rs 18,000 to Rs 28,400 a tonne for Pusa-1121, and Rs 25,400 to Rs 30,300 a tonne for traditional varieties such as HBC-19 and CSR-30.

LOW EXPORT ORDERS

“Most of these purchases were made in the belief that last year’s enormous global appetite for basmati will be repeated and also the Government will withdraw the export tax of Rs 8,000 a tonne on basmati rice,” an industry observer pointed out.

But neither of this has taken place.

So far, importers have placed orders for barely 50,000 tonnes of Pusa Basmati-1 and traditional basmati rice, which is a tenth of what was received during this period last year.

IRAN IMPORTERS

Only for Pusa-1121, orders for 2.5-3 lt have been placed, mainly for despatch to Iran, where this variety has a niche appeal.

But even here, there are reports of Iranian parties facing payment problems or trying to renegotiate contracts.

FINANCING

“You have a scenario where practically 80 per cent of paddy purchases are against no purchase orders and financed through banks or market credit. The industry is today one highly leveraged hedge fund that has got its bets totally wrong this time,” the observer said.

ICICI and HDFC are among the leading financiers to the basmati industry.

PRICE FRONT

Last year, millers and traders began purchases of Pusa Basmati-1 and Pusa-1121 paddy at Rs 18,000 to Rs 19,000 a tonne, which had by May-June crossed Rs 38,000. HBC-19 prices likewise shot up from Rs 24,500-25,000 to Rs 40,000-plus by May.

‘NO PRICE RISE’

“This time, with export orders drying up, there is no possibility of prices rising. In the last 15 days, Pusa-1121 auction prices have actually dropped from Rs 28,000 to below Rs 25,000 a tonne, while Pusa Basmati-1 is now trading below Rs 20,000, which is Rs 1,000 lower than last year at this point,” an industry observer said.

CARRYOVER STOCKS

Moreover, traders have also lost out in terms of the value of their carryover stocks.

At the start of the new season, the industry as a whole is estimated to have been carrying stocks of 10-15 lakh bags (of 50 kg each) of Pusa Basmati-1, 15-25 lakh bags of Pusa-1121 and 8-10 lakh bags of traditional varieties.

LOSING GAME

“If you take the average value of Pusa-1121 stocks as on April 1 this year at Rs 26,000 a tonne, and add to this 10 per cent on interest, storage, fumigation and insurance charges, it means prices should at least be Rs 28,500 to justify holding till the end of the year. But the traders made bulk of their purchases at Rs 26,000 to Rs 28,000 a tonne, and which has since come below Rs 25,000. So, you lose on the old stocks as well as the new purchases against which there are no export orders,” the observer added.

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