The minimum support price (MSP) of Indian non-basmati will rise from Rs 10,800 per tonne to Rs 12,500 per tonne, once the recommendation of the Commission of Agriculture Costs and Prices for the 2012-13 kharif crop is accepted by the Government.

However, after the initial price spurt at the beginning of the new season in October 2012, the price guidance of local paddy will be defined by international tolerance, rather than MSP. This hike of 16 per cent or Rs 1,700 per tonne or $30/ (1$ = Rs 56) may not have any substantive impact on FoB export values of Indian rice, though it may inflate the subsidy bill.

Quotes of the Indian common grade variety in dollars will remain competitive internationally. However, with the surge in prices of the parmal (PR) variety, exports of parboiled rice to Nigeria may lose some of their appeal.

LIMITED PROCUREMENT

Barring any unforeseen weather conditions, milled rice production from the 2012-13 kharif crop with higher MSP will easily cross 87-88 million tonnes. However, open market values do not imitate price escalation as envisaged by MSP, especially in south-eastern India, from where most of the 25 per cent broken rice is sourced and exported.

Though FCI's 2011-12 economic cost is Rs 24,000 per tonne or $430, 25 per cent white rice in Kakinada is available at Rs 18,500 per tonne or $330 per tonne and shipped at $365 FoB. Vietnam and Pakistan quotes are $380/390 FoB. Thais are not able to trade their rice at $510/520 FoB. The same price band of domestic and international pricing is likely to continue, though Vietnam, Pakistan and Thailand will be thrilled if Indian market prices move up. Hope they do, as this will benefit the farmers, but the chances are slim.

Why would exportable varieties from the south and east be cheaper? It is because Punjab/Haryana's farmers will be tempted to sell most of their parmal (PR) variety produce to FCI and State agencies, due to the 16 per cent increase in MSP. Official procurement from Andhra Pradesh, Chhattisgarh, West Bengal and Bihar will be lax and poor due to more than adequate stocking in the North, though these States will clamour for a greater share in the central pool. Logistically, it might be difficult to accede to their pressure. Therefore, surplus availability of this cereal in India's south-eastern region will drive further market prices below MSP.

Out of the 80 million tonnes of grains stored by Government of India as of June 1, 2012, more than 30 million tonnes are lying in open or unhygienic storage.

The compulsion to offload higher percentage of BPL and APL rice at Rs 3-6 per kg will intensify. Low cost rice will circulate in the bazaar, creating greater surpluses and value mitigation.

The rupee depreciated by 19 per cent between October 2011 and May 2012, against the MSP's rise of 16 per cent. Even if Indian paddy prices reflect some upward movement in the open market, higher devaluation of the rupee will ensure that export quotes are relatively unchanged.

GLOBAL PREFERENCES

The Vietnamese Dong (VD) has shown about 1 per cent depreciation in the same period. Though a further decline in rupee value is expected, the VD is not exposed to imminent danger of devaluation — thereby keeping Vietnamese prices unaltered.

Thailand, Vietnam, Pakistan will continue to face competition from Indian white rice in Africa, Mid-East and the Far East. Requirements for parboiled rice in Nigeria and South Africa will stay unchanged, and their larger pie remains assigned to the Indian crop. Major importers like the Philippines and Iraq have no preference for India.

Iraq buys Thai and South American origins at $600 c&f plus, while the Philippines has a fondness for Vietnamese rice, despite Indian shipments being the cheapest in the world. China has shown a significant inclination for Pakistani rice.

Under these conditions, Indian exports of non-basmati rice in 2011-12 would rise from zero to 5.5 million tonnes; Thailand's exports shall fall from 10 to 7 million tonnes; Vietnam may be down from 7 to 6 million tonnes this year; and Pakistan may stay unchanged at 4 million tonnes.

The demand in overseas markets continues to be sluggish, with anticipation of a further decline in prices due to the strengthening dollar and overstocked African markets. The worldwide rice production of 462 million tonnes and consumption of 457 million tonnes represents a fairly balanced matrix, while carry-over is likely to rise from 95-100 million tonnes. In short, there is no extra demand-pull.

The only danger that world rice trade faces today is the panic-induced reversal of paddy procurement scheme by Thai authorities. The Thai government has accumulated 14 million tonnes of paddy at $480/tonne against vs $280/tonne last year, making their exports at $780 FoB unviable.( Some recent rice export from Thailand are of smuggled paddy from Cambodia.) With the pressure from excessive stocks building up and new crop of 24 million tonnes expected, any knee-jerk reaction by Thai policy makers may compel them to suddenly offload their paddy at heavily discounted prices, destabilising the rice trade.

Otherwise, with a bearish-to-stable environment, Indian non-basmati rice trade may exceed 6 million tonnes in 2012-13.

(The author is a grains trade analyst)