Indian rice exporters offer discount to resolve dispute with Vietnam buyers

Indian rice exporters are offering discounts of over $100 a tonne (approximately ₹7,500) to resolve their dispute with Vietnam buyers as they don’t want to drag the issue further and lose more money.

“Indian exporters are offering the discounts because there is a fear that they would be left paying huge demurrage charges if the issue remains under dispute and their consignments gets held up either in the vessel or at the ports,” said M Madan Prakash, President, Agri Commodities Exporters Association (ACEA).

Prakash faced problems with 500 tonnes of white rice shipped to Vietnam and his firm had to offer the discount. “Our problem was that the shipping document got delayed and bank closure in Vietnam left our shipments pending,” he said.

Trade sources said discounts ranged from $120 to $180 a tonne (₹8,925-13,375). “When one seller offers a $100 discount, it is natural for the buyer to demand a $110 discount. A discount of $150 (₹11,150) a tonne is a usual phenomenon,” said BV Krishna Rao, President, The Rice Exporters’ Association (TREA).

Genesis of trouble

Rice exports from India, world’s largest exporter, to Vietnam ran into trouble last month as buyers in the South-East Asian nation bargained hard for huge discounts and threatened to not buy the consignments.

Vietnam buyers did not take delivery, pointing to Covid third wave restrictions and drop in domestic prices after the arrival of the autumn rice crop.

Vietnam’s autumn rice crop, projected at 15.2 million tonnes (mt), began arriving in end-June. It is estimated to be higher than last year’s 15.06 mt and initial projections of 15.11 mt.

“Apart from the threat of having to pay demurrage charges, exporters also faced the danger of their consignments being declared as feed. It will further erode the value of their shipments,” said Delhi-based trade analysts S Chandrasekaran.

‘ No other way’

“Indian exporters have to offer the discount and come out (of the trouble). There is no other way,” said Vidya Sagar VR, Director, Bulk Logix.

Exporters have to pay demurrage charges once their consignment gets held up more than 14 days.

Nearly one lakh tonnes of rice of various grades were held up near Vietnam ports in view of the dispute over prices. Prakash said the consignments were both 100 per cent broken as well as up to five per cent broken. Sagar said most of the shipments were 100 per cent brokens.

While a bulk of the consignments were shipped at over $325 (₹24,150) a tonne, the five per cent white rice consignments were exported at $400-440 (₹29,725-32,700) a tonne cost and freight.

Drop in prices

According to the International Grains Council (IGC), Indian 25 per cent rice is currently quoted at $374 (₹27,800) a tonne. Thailand’s five per cent broken is quoted at $377 (₹28,000) a tonne and Vietnam’s five per cent broken at $390 (₹29,000).

Prices of Indian rice have dropped by two per cent, while those of Vietnam by 19 per cent and Thailand 21 per cent from the same period a year ago, the IGC said.

Though Vietnam is the second-largest rice exporter, it imports rice from India for making wine and feed for poultry and cattle. It began buying rice, mainly 100 per cent brokens, from India for the first time in decades last fiscal.

The game plan

Vietnam prefers to buy 100 per cent broken also because it is cheaper than other grades. While importing low-grade rice from India, Hanoi’s plan is to export superior grade rice to gain more value.

Trade sources said exporters mainly from Andhra Pradesh were caught in the controversy with Vietnam. In one case, a well-known rice exporting firm had its entire vessel held up as buyers negotiated hard for the discount.

“The entire vessel would mean a consignment of 20,000 to 25,000 tonnes since Vietnam cannot accommodate ships of higher capacity,” said Bulk Logix’s Sagar.

“This incident will make Indian exporters wary of exporting to Vietnam in future or they will take more precautions. Vietnam is not a regular buyer of Indian rice and this is one reason why such a problem has cropped up,” said TREA’s Rao.

Benin experience

Last year, some Indian exporters took risk in exporting to Benin in Africa despite having had a bitter experience in 2015 when buyers demanded a $150-200 (₹11,150-14,875) discount when Indian par-boiled rice shipments were set to arrive at Cotonou port.

A Delhi-based rice trader said exporters lost $1.2 million (₹8.91 crore) of their income then.

Vietnam imported a meagre 385 tonnes of rice valued at ₹85.72 crore from India in 2019-20 fiscal but bought 2.93 lakh tonnes valued at ₹658.43 crore last fiscal. In the first two months of the current fiscal, it imported 1.5 lakh tonnes valued at ₹377.46 crore.

Chandrasekharan said this could be even part of some big Vietnam buyers' effort to hurt Indian shippers financially. “After all, we are the number one exporter now, rising from number three a few years ago,” he said.

Focus turns to Bangladesh

Bulk Logix’s Sagar said Indian exporters needed to end the dispute with Vietnam since they were all focussing on Bangladesh now. “Bangladesh cut its import duty on rice imports. There is a good movement of rice from India towards that country,” he said.

In December last year, Bangladesh cut the import duty and other government charges for import of rice (non-Basmati) to 25 per cent from 62.5 per cent. This has helped India export 4.28 lakh tonnes of rice during April-May this year. During the whole of last fiscal, Bangladesh imported 9.11 lakh tonnes of rice from India.

“Bangladesh rice crop is not adequate to meet domestic demand. This is helping India,” said a trader.

Sagar said India is becoming an important player in the non-Basmati rice market and will be exporting “significant volume” over the following years.

Record outputs help

Over the last two fiscals, Indian rice exports have been helped by record productions during the last two seasons (July -June).

According to the Ministry of Agriculture and Farmers Welfare, rice production in July 2019-June 2020 was 118.87 million tonnes (mt) and for the last season, it has been estimated at 122.27 mt.

Besides, the Food Corporation of India (FCI) has also been carrying huge stocks. In April last year, it carried 32.23 mt of rice and 25.23 mt of paddy that can yield 16.98 mt of rice. This April, it had 29.11 mt of rice and 26.22 mt of paddy that can yield 17.65 mt of rice. As on August 1, FCI had 29.1 mt of rice and 22.92 mt of paddy that can yield 15.42 mt of rice.

The stocks are against the mandatory norm for FCI to have 11.54 mt of rice as operational stock and two mt as strategic reserve.

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