Basmati acreage may remain at last year’s levels

India has produced over 100 million tonnes of rice annually for the last six years. Kharif is the major season for paddy, accounting for 88 per cent of the annual output. India produced record rice output during 2011-12, at 104.26 million tonnes. Since then, surplus production for five consecutive years has buoyed up rice stocks in the open market. As a result of this glut, premium rice varieties have seen their prices fall throughout this season. Some varieties of rice have seen prices decline by as much as 25 per cent, never to revive. Stockists who held these varieties have notched up huge losses.
Basmati glut
The Basmati rice complex has been the worst hit among rice varieties. Merchants and millers had bought paddy at around ₹2,700 a quintal in November-December 2014, but prices traded at around ₹2,400 for the rest of the season. The major reason for this price drop is excess production as well as import restrictions by Iran. The production part first. Basmati rice production in 2014-15 was up 33 per cent at 5.88 million tonnes. The higher planting of Basmati varieties was due to the handsome prices realised by farmers at around ₹5,600/quintal in November-December of 2013.
At the same time, a new short duration variety 1509 was also introduced, which allowed farmers to reap three crops in a year. This also earned them two-three times higher realisations than non-Basmati paddy which is a longer duration crop.
However, millers have resisted buying the new 1509 variety due to its poor recovery rates and lack of acceptance in the export market. Continued plantings of this 1509 variety have contributed to the Basmati glut too.
Given this backdrop, what’s ahead for this season? The Basmati complex (1121, 1509 varieties and others) will see record production for the second year in a row in 2015-16, at 5.91 million tonnes. Opening stocks with millers and merchants are already at around 0.85 million tonnes, which is more than double the levels of season.
A variety-wise break-up shows that production of the 1121 variety could be around 4.38 million tonnes (+0.4 per cent), the 1509 variety at about 0.74 million (+1.4 per cent) and production of the traditional varieties at 0.39 million tonnes (+0.7 per cent). As a result, prices have already declined sharply.
Farm realisations (after excluding direct and indirect costs) for Basmati have been sharply lower year-on-year and even negative, for the farmers cultivating rented land. Interestingly, the farm realisations for non-Basmati rice have improved year-on-year for all farmers. The rents are lower for non-Basmati and the downside to the price is also limited due to the strong MSP-based government buying.
Export prospects
But while there is excess supply, domestic consumption of Basmati is expected to increase by a sharp 10 per cent to 1.55 million tonnes this year. Growth in domestic demand has been helped by lower prices and the increased use of branded products. Low prices last year also stimulated export demand. India’s Basmati exports increased 17 per cent to a record 4.05 million tonnes.
While the largest buyer, Iran, has been reducing its imports for the last couple of years (imports in 2014-15 were 0.86 million tonnes), with depleting stocks and lower prices, Iranian demand is expected to revive in the current season. As a result, Indian Basmati exports are expected to reach a new record of around 4.4 million tonnes in 2015-16. The new crop arrivals are expected to pick up in the first week of November.
In the near term, prices of Basmati (1121) could head lower from ₹2,000/quintal levels due to higher stocks, record crop and arrival pressures, to below ₹1,800. However farmers’ resistance to any prices below the cost of production will provide a floor to prices at those levels.
Over the next three to four months, prices could recover on higher demand to around ₹2,400/quintal. Sharper rallies are, however, unlikely due to record availability of Basmati. Overall, this season may be better compared with the previous one as prices have already corrected. Downside in prices from here is limited and lower prices will stimulate only demand.
(The writer is VP, Agri Value Chain, Edelweiss Financial)
The Korean giant’s early bet on mobile phones helped it hit the $10-bn mark in India, but in its 25th year it ...
Antrix should adopt a different tactic than merely fighting over jurisdiction: Experts
Invest in relationships, enterprise, behaviour, effort and learning
From different types of osmoses to new membranes, researchers have come up with ways of drawing water
High valuation and stiff competition from larger players are a dampener
₹1503 • HDFC Bank S1S2R1R2COMMENT 1500148015101525 As the stock has broken out of resistance at ₹1,500, ...
The stock of Kajaria Ceramics Limited, after witnessing a fresh breakout, on Tuesday hit a fresh 52-week high ...
Will a stock continue its current trend or will it reverse? We tell you how you can read chart patterns to ...
In these isolated times when people yearn for a slice of the familiar, amateur and professional chefs are ...
Writer Narendra’s latest book, rich with vignettes from Bastar and his native village in Uttar Pradesh, ...
On the eve of his 86th birthday, a peek into an interview-based book that reveals the actor’s many moods, ...
Forget the tuna. The island nation will keep you full and happy with coconut, koftas and jasmine
Digital is becoming dominant media, but are companies and their ad agencies transforming fast enough to make a ...
Slow Network, promoted by journalist-lyricist Neelesh Misra, pushes rural products and experiences
How marketers can use the traditional exchange of festive wishes meaningfully
For Fortune, a brand celebrating its 20th anniversary, it was a rude shock to become the butt of social media ...
Three years after its inception, compliance with GST procedures remains a headache for exporters, job workers ...
Corporate social responsibility (CSR) initiatives of companies are altering the prospects for wooden toys of ...
Aequs Aerospace to create space for large-scale manufacture of toys at Koppal
And it has every reason to smile. Covid-19 has triggered a consumer shift towards branded products as ...
Please Email the Editor