Basmati to stay on Iran’s plate

TEJINDER NARANG | Updated on March 10, 2018

India's rice exports to Iran and Nigeria to remain strong.

Those who believe Iran will tap other rice producers are discounting India’s advantages.

Immediately after the US/EU-Iran interim agreement was signed on November 24, there were widespread concerns that India’s basmati exports to the Islamic republic will take a hit. Since the 2011 sanctions, Iran has been increasingly depending on Indian exports of the cereal. Now, with the prospects of the West relaxing sanctions, Indian exporters fear the country might not buy as much as it did earlier.

Shortly after the pact was signed, the “export sentiment” for the 1121 Basmati variety to Iran turned bearish. Many felt Iran may divert business to Pakistan and Thailand. But that might be a knee-jerk presumptive reaction. The fact is the prospect of increased basmati rice export to Iran and more exports of non-basmati rice to Nigeria and Bangladesh may further strengthen India’s exports of this cereal in 2013-14.

Trade with Iran

Also, rupee depreciation has provided India with a cutting edge. The country’s number one rank in global rice shipments is likely to be maintained — about 10-11 million tonnes (mt), or approximately 30 per cent share in the global trade of 35 mt.

India is uniquely placed to utilise Rs 50,000 crore (or $8 billion) held in UCO Bank on Iran’s account. Pakistan and Thailand lack such a facility. The U S sanctions on Iran’s oil exports remain intact, neither have curbs on banking been relaxed. The lifting of all restrictions would depend upon the signing of a comprehensive agreement.

Meanwhile, the Shia-Sunni rift in the Muslim world can rock the interim agreement. Pakistan is closely aligned with Sunni Saudi Arabia, which has opposed this rapprochement. Any accommodation by Iran of Pakistan would mean implicit support to Saudi’s ally, which is highly unlikely.

Moreover, India’s global basmati exports are 3-3.5 mt per annum. Iran’s annual import requirement of basmati rice is 1.7-2 mt , while India’s supplies to the country have increased from 0.5 mt to 1.1 mt in the past the four years, with better price realisation.

In 2013-14, India’s share could be about 80 per cent of Iran’s import of rice — about 1.4-1.5 mt. This reliance cannot be dismantled overnight. On the contrary, dependence on Indian cereal can increase — especially with the new hybridised paddy 1509 with better yield and lower costs. In 2012-13, Pakistan’s total basmati rice export to 96 countries was 0.63 mt, according to Rice Exporters’ Association of Pakistan. The country supplied only 43,000 tonnes to Iran. Its monthly shipments are around 3,600 tonnes, against the Indian average of approximately 1,00,000 tonnes.

In the absence of a smooth banking arrangement with Pakistan, ideological differences, lack of research capacity, quality issues and persistent power shortages, Pakistani rice cannot match the Indian 1121 variety.

Thailand has been a supplier of superior quality non-basmati rice (NBR) to Iran. Its Hom Mali (fragrant rice) export virtually stopped after 1121 was introduced.

The grain length and elongation characteristics of 1121 are not tested by Hom Mali, which costs about $1,100/tonne. Iran and Indian shippers use certain blends of Indian basmati and long grain NBR to lower fob values.

With Nigeria

On July 25, 2013, Iran sourced 2,50,000 tonnes of NBR (white rice) at $520/tonne fob, and not the fragrant variety. Any small revival of Hom Mali cannot replace the preference for 1121.

In November, Nigeria slashed “effective” import duty on non-basmati rice from 144 per cent to about 44 per cent for the arrival of vessels in December 2013-January 2014. Export tax arbitrage with neighbouring Benin has ceased. The new duty regime is for two months, but what happens later is anyone’s guess.

Nigeria imports 2.5-3 million tonnes NBR-parboiled (PB) annually, mostly from India, Thailand, and Brazil. Direct Nigerian imports from India are about 0.8 mt in 2012-13.

In addition, Nigeria’s neighbour Benin has been used as a base-country for import via Cotonou of about 0.5 mt of Indian rice to Nigeria. Thus India accounts for about 50 per cent (1.3 million tonnes) of Nigeria’s rice imports that may rise to 70-75 per cent in 2013-14.

Indian par-boiled rice costs $400/tonne fob as against $470/tonne in the case of Thailand. Prominent Nigerians buyers are keen to secure Indian arrivals at least till Nigeria retains its low duty regime. Indian shippers are in a hurry to despatch their parboiled rice and even diverting their cargos on high seas from Cotonou to Lagos.

About a quarter million tonnes is contracted additionally by prime Nigerian importers in end November-early December 2013 with Indian shippers.

Bangladesh’s needs

The Government of Bangladesh (GOB) needs import of 0.5 mt of rice immediately of 15 per cent par boiled variety. India is commercially and strategically well placed to meet this demand. But the India and Bangladesh governments are not able to conclude a G-to-G deal. Reasons: FCI stocks need upgradation and repackaging, special pricing and several other issues.

Past dealings of PSUs with private players on a back-to-back basis have been controversial due to procedural reasons.

Indian open market prices are the lowest on delivered basis to Bangladesh. The Bangladesh government has no alternative but to import from private Indian suppliers, where Indian bidders compete on best market price (and not FCI).

Thailand does not have significant availability of 15 per cent broken parboiled rice. Pakistan may not be successful in quoting competitive tenders while competing with India.

All Bangladesh has to do is to follow internationally accepted practices, rather than customised tendering conditions prone to defaults and rent seeking.

Indian Policy

Since 2011, the Indian government has kept rice trade/export free from any conditions and encumbrances. That is why India has secured number one rank in world trade. Stocks of FCI remain untouched. Private market availability and dollar/rupee exchange rates have been helpful. Research in new rice varieties has added impetus.

More flexibility in Iran’s rupee account will be supportive of rice and non-rice trade. Removal of recent stock limits on rice for export will also improve the sentiment.

(The author is a grains trade analyst)

Published on December 19, 2013

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