The Indian basmati rice industry is on the verge of clocking its highest ever exports of around Rs. 30,000 crore in FY2019 (previous high of Rs. 29,300 crore in FY2014), according to an ICRANSE -0.03 % report released on Wednesday.
The growth has been fuelled by considerable firming up of average realisations, strong demand from Iran and steady increase in paddy prices for three years in a row. As per an ICRA note, the momentum of the current fiscal is likely to percolate into the next fiscal, FY2020 as well with expectation of 4-5% growth in exports, given the high base.
Elaborating further, Mr. Deepak Jotwani, Assistant Vice President, ICRA, says, “It is important to note that this growth has been despite some challenges that surfaced during FY2019 - pesticide residue issue leading to a decline in exports to European Union (EU), Saudi Arabia mulling adoption of stringent pesticide rules, payment issues from some Iranian importers and uncertainty due to imposition of trade sanctions on Iran by the US Government. The stringent pesticide norms by EU led to loss of exports worth around Rs. 1,000 crore in 9MFY2019, and the same could exacerbate going forward. Nevertheless, the fact that EU contributed around 8% to the exports till FY2018, allowed for the loss to be compensated by exports to the Middle Eastern countries. Further, the industry has been able to tide through most of the other issues, as demonstrated by steady increase in exports to Saudi Arabia and establishment of the rupee payment mechanism to facilitate future trade between India and Iran, its prime market for Basmati exports. However, overall, tightening of pesticide residue norms by key importers could be a long-term risk for the industry.”
Continuing the momentum from FY2018, India has already exported Basmati rice worth Rs. 24,919 crore (3.37 million MT) in 10M FY2019, 17% higher than Rs. 21,319 crore (3.28 million MT) in the corresponding period in the previous fiscal. Like the previous fiscal, growth in the current fiscal too has been driven by firming up of average export realisations (14%), while the volumes have only been marginally higher (2%). Over the next few quarters, demand in the export market is likely to remain steady (also supported by resumption of imports by Iran), thereby driving the industry exports in FY2019 to the highest ever level of almost Rs. 30,000 crore.
As per ICRA, the average export realisations have firmed up to Rs. 74,053/MT in 10MFY2019, against Rs. 64,997/MT in 10MFY2018, on the back of multiple factors namely increase in paddy prices over the previous and current year’s procurement season, aggressive buying by Iran in the first half of the fiscal due to the uncertainty at that time regarding imposition of US trade sanctions and its impact on trade between India and Iran; and depreciation of the rupee against the USD.
Basmati paddy prices have been on an increase for two years (FY2017 & FY2018) in a row. In the current fiscal as well, basmati production has been lower by around 5%, attributable to some decline in area under cultivation as some farmers shifted to non- basmati due to a considerable increase in its Minimum Support Price; and some loss of the standing crop due to untimely rainfall in some of the key Basmati rice growing states. Consequently, paddy prices have firmed up by 10-15% across varieties, third year in a row. Hike in Basmati rice average realisations is likely to sustain in H1 FY2020, given the increase in paddy costs in the recently concluded procurement season and steady international as well as domestic demand outlook.
“However, the strong growth in the current fiscal also foretells the need to be cautious. The inventory funding requirements of the industry have been increasing thereby accentuating price risk. In such a scenario, minor dip in international demand, especially given high concentration on one country for almost a third of the total exports, renders the industry vulnerable to some extent. The industry may be at the peak of the paddy price cycle, which was last witnessed in FY2014 before the prices corrected sharply. Industry participants would need to be cautious about this and be prudent with their inventory holding,” concludes Mr. Jotwani.
Source :- Economictimes.indiatimes.com