Domestic Basmati Rice Exporters Suffer An Export Duty

New Delhi: Even as the domestic basmati rice exporters suffer an export duty and a lowered minimum export price (MEP) with a ban on non-basmati rice export that pre-empted export of non-notified premium varieties such as Pusa 1121, Pakistan stole the thunder by fixing a higher and graded MEP on two varieties of basmati without slapping an export ban on its non-basmati variety.

Marathon meeting

Sources in the export industry told Business Line here that after a marathon meeting from April 29 night till the dawn of April 30, the Rice Exporters Association of Pakistan had with its Finance Minister, a notification issued by the Commerce Ministry on May 1, put the MEP for super basmati at $1,500 a tonne, medium grade at $1,300 a tonne and non-basmati Irri-6 at $750 a tonne.

The higher MEP in both the first two varieties of Pakistan was far higher than the $1,000 MEP India has declared but not notified till date. It was contended in Islamabad that the higher MEP would confer maximum benefits on farmers and push growers to augment yield for the next crop. It was further stated that basmati rice production would go up to eight million tonnes in the next crop from the current crop of 5.5 million tonnes.

Advantage Islamabad

Islamabad said with the MEP in place, the value of rice exports would increase to $4 billion by the end of this year from the $1.2 billion last year. Policy analysts say that by putting a higher MEP, Pakistan is signaling the message to the rest of the world that its basmati rice is better quality than the counterpart Indian varieties.

Already when India notified a variety in 2006 that was originally evolved by Pakistan, there was some resentment in Islamabad that led to the stalling of joint bid by New Delhi and Islamabad for a geographic indication (GI) to basmati rice.

Now by putting a higher MEP to its super basmati variety at $1,500, Pakistan has sent an unequivocal signal to the connoisseur of basmati that its variety is superior, deserving a premium price, against India’s basmati MEP at $1,000 a tonne. The sources said that it is time India also considered the MEP on varietal lines so that our market share abroad is not lost or impinged substantially.

Currently, it is reckoned India holds 53 per cent share in the global market of basmati rice and Pakistan the second slot with intense competition always simmering between the two exporters. India’s unquestionable sway persists because of constant technological improvement, marketing techniques and consistency in quality and reliability of supply.

Another important factor that weighed in India’s favour so far was that it seldom restricted its export of basmati rice even in PL 480 days.

Export duty by India

As the recent export duty imposed by India on its basmati rice by $200 would increase the export price by a hefty 20 per cent in the short-run particularly when rival Pakistan exporters do not suffer any such cost disadvantage in exports, the demand for Indian basmati rice abroad would distinctly come down which is reckoned by industry analysts to be somewhere in the range of 35-40 per cent or 4.5 lakh tonnes within one-year period.

If the sharp drop in demand in global market were to come true, the domestic market could not absorb the supply as it accounts for hardly 15 per cent of total production, derailing the sustainable operation of this premium crop in areas such as Punjab, Haryana, western Uttar Pradesh and contributing to the transfer of income of Indian basmati growers to Pakistani basmati paddy farmers, they cautioned.

The twin measure of lower MEP and a high export duty slapped on basmati rice by the Government as part of its anti-inflationary strategy to keep domestic availability of rice would damage the very sustainability of this export crop, imperiling the livelihood security of farmers growing basmati, the sources said.

$200 A Tonne Export Duty On Basmati

New Delhi: The Government’s decision to lower the minimum export price (MEP) of basmati from $1200 a tonne to $1000 a tonne and simultaneously impose an export duty of $200 or Rs 8,000 per tonne on basmati rice exports has derailed the predominantly export-oriented industry’s business calculations.

The Finance Minister, P. Chidambaram’s proposal while replying to the Finance Bill 2008 in the Lok Sabha relating to basmati rice export duty is construed as a move to garner revenue to the exchequer at a time when the Government is compelled to cut down customs duty on a whole range of mass consumption items in recent months as part of its anti-inflationary strategy.

Latest official figures based on provisional statistics show that the country exported basmati rice worth Rs 3,240 crore during the first eleven months of the current fiscal, against Rs 2,482 crore in the corresponding period of 2006-07, clocking a growth rate of 31 per cent.

The All-India Rice Exporters Association President, Vijay Sethia, told Business Line here that ever since the international rice prices had been on the high from October 2007 onwards, the Government has been periodically pushing up the MEP on basmati rice several times with the last revision at $1200 a tonne MEP for basmati rice.

Little for manoeuvring

Sethia said normally rice exporters undertake contracts on a committed volume and price with the latter being invariably lower than the spot market price.

They have little room for manoeuvre to bear the extra export duty burden cast on them. As 90 per cent of the country’s basmati rice is exported, this sort of additional duty burden and periodic hike in MEP caused a big dent on the contractual obligations of exporters, weaning the importers away from Indian suppliers in the global grain markets.

Sethia felt that if this sort of sustained assault is upon the basmati rice export industry, India’s rivals such as Pakistan, Vietnam and Thailand would capture a large chunk of the traditional markets built and nurtured by domestic industry over long years.

Industry sources further said the blanket ban on export of non-basmati rice early this month has already taken a toll on the export of Pusa 1121 basmati rice, which conforms to all quality parameters of basmati rice but falls technically in the category of non-basmati rice in the absence of a proper definition of what constitutes basmati rice.

Non-Basmati shipments

Given the ground reality that the production of Pusa 1121 rice variety was around 60 per cent of the crop size of basmati paddy of the kharif 2007, the recent ban on non-basmati but premium variety would suck out 60 per cent of export of basmati rice from the country. With the ban in vogue, trade sources reckon that already the Government has prevented export worth about two lakh tonnes of Pusa 1121 basmati rice for the later period of the crop year.

Sethia contends that growers of Pusa 1121 account for a lion’s share in the export market and farmers who have been growing this basmati variety were getting an annual return of Rs 50,000 to Rs 60,000 per acre and with the ban on this rice and slapping of export duty on basmati rice, these growers’ annual income would get pruned to Rs 20,000 per acre, affecting their livelihood security and pushing them to press for loan waiver or other sops.

Echoing similar apprehensions, another important rice exporter KRBL Chairman, Anil Mittal, said that as it is the raw material cost of cultivating rice accounts for 70 per cent and other overheads including logistics and packaging cost another 25 per cent with the industry being left with a margin of 5 per cent. If on this wafer-thin margin, a huge burden like 20 per cent tax is added, the industry could only denude its capital to stay in the fray to export.

Minimum Export Price Of Non-Basmati May Be Hiked

New Delhi: In a move aimed at discouraging rice exports, the Centre plans to further raise the minimum export price (MEP) of non-basmati shipments. This comes even as the country’s rice production is said to have touched an all-time high of 94.08 million tonnes (mt), going by the Agriculture Ministry’s ‘second advance’ estimate for 2007-08 released on Thursday.

“There is a proposal to hike the MEP from the present $500 a tonne free-on-board (f.o.b.) level. The exact figure is to be decided, but it could even be in the $600-plus range,” highly placed sources told Business Line.

The Centre had originally banned all non-basmati rice exports with effect from October 9. However, following complaints from exporters, who represented that the ‘non-basmati’ category covered a whole gamut of premium varieties not procured for the public distribution system (PDS), the blanket ban was replaced by an MEP of $425 (Rs 17,000) a tonne f.o.b. from October 31. The latter was subsequently increased to $500 (Rs 20,000) a tonne effective from December 27.

Concern over availability

But with international prices shooting up, there is renewed official concern over exports undermining domestic rice availability. Since the start of the current calendar year, prices of 100 per cent Thai grade B rice have increased from $375 to over $450 a tonne f.o.b.

“The Government is particularly worried about exports of long-grain varieties such as PR-106, which are procured for the PDS and are currently being shipped out at $550-600 a tonne f.o.b. There is a market for Indian long-grain in countries such as Saudi Arabia, which has announced a subsidy of $250 a tonne on rice imports into the country,” the sources noted.

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According to them, since October, about 80,000 tonnes of PR-106 has been shipped out to Saudi Arabia and the figure could cross 200,000 tonnes by September. These are mainly taking place through the Kandla and Mundra ports. “With a $250 a tonne import subsidy, an MEP of $500 a tonne becomes meaningless. While Thai long-grain rice is selling cheaper at about $450 a tonne, there is a marked preference for Indian long-grain varieties in West Asia,” the sources added.

Premium varieties

But the problem in hiking the MEP further is that it could hit exports of ‘Ponni’, ‘Red Matta’ and other such premium non-basmati varieties that are not procured for the PDS. Further, these basically cater to niche overseas Indian markets in the US, West Asia, Malaysia and Singapore. ‘Ponni’ rice, for example, is currently going at $550-600 f.o.b.

“A fine balance will have to be struck between discouraging exports, while not hampering shipments of PDS non-compatible grain. But in an election year, the Government’s worries over inflation and domestic availability obviously override all other concerns. And neither does the market take the Agriculture Ministry’s claims of a record crop very seriously,” the sources pointed out.

Currently, basmati-grade varieties from India are quoting (per tonne cost & freight, West Asia) at $1,550 for traditional (CSR-30) par-boiled and $1,850-1,900 for traditional raw, while correspondingly ruling at $1,400-1,600 for Pusa Basmati-1 and Pusa-1121.

One-year-old aged raw Pusa-1121 is fetching up to $1,800 a tonne. Prices of Sharbati, too, are ruling between $850 and $950 a tonne, depending on whether the consignment is of par-boiled or raw.