Agri Business

High prices could trip basmati exports

Vishwanath Kulkarni New Delhi | Updated on November 11, 2011

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A minimum export price (MEP) of $900 a tonne for basmati rice, considered high in the current global market, may spoil the party for Indian exporters.

The exporters want the Government to either revise the MEP for basmati in line with prevailing global prices or abolish it completely and leave the pricing to market forces.

Prices of basmati in the past one year have crashed from an average of $1,100 to $650 a tonne. This crash has been triggered by factors such as a consecutive bumper harvest in key producer India and huge carry forward stocks, weakening demand from the financial crisis hit European Union and the US, and payments issues surrounding Iran, the biggest buyer for the premium Pusa 1121 variety. Unless the Government intervenes now, exporters said they face the risk of losing their market share to rival Pakistan.

“There is no rationale to keep the MEP as the Government has already opened up exports of non-basmati rice,” said Mr Anil Mittal, CMD of KRBL Ltd, the country's largest exporter. MEP was introduced a couple of years ago to ensure that non-basmati rice is not exported as basmati.

As prices of paddy have dropped by 20-25 per cent this year on account of a 10-15 per cent increase in crop size, the buyer is not willing to pay a high price. “If the Government does not (do a) rethink on high MEP, buyers are bound to shift to other suppliers like Pakistan,” Mr Mittal said.

Low realisation

The All India Rice Exporters Association (AIREA) has already written to the Government to resolve this issue as importers are hesitant to sign new contracts. With paddy arrivals in full swing, farmers are realising a price of just Rs 14-16 a kg, against Rs 21-23 last year. Shipments of the rice from the new crop are likely to start in the next two to three weeks, exporters said.

“Exporting at a high is becoming difficult as no business is getting concluded,” said Mr Vijay Sethia, President, AIREA. Unless, it is revised downwards, there could be a delay in shipments and payment cycles, he added.

Basmati shipments in October are already down 38 per cent over the corresponding period last year. In September, the shipments were down 22 per cent, Mr Sethia said while expressing confidence that the overall exports will be at last year's levels.

India exported 2.18 million tonnes of basmati in 2010-11 mainly to West Asia, the United States and the European Union.

“MEP is proving a bottleneck. It should be done away with as it has nothing to do with the pricing that's driven by demand-supply situation,” said Mr Gurnam Arora, Joint Managing Director, Kohinoor Foods Ltd. The company is targeting a 30 per cent increase in exports to 1 lakh tonnes this fiscal.

Published on November 11, 2011

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