It is time to confront the uncomfortable truth of basmati rice quality and authenticity. Variation between the lowest and highest export price, having dozens of varieties, sourcing the product from non-traditional growing areas and lack of quality control are threats to the reputation of basmati rice, in turn to the sustenance of GI (Geographical Indication) tag.
After Minimum Export Price (MEP) was imposed on basmati rice in August 2023, the export price realisation has been higher. The current higher price realisation can be compared to that of the years between 2007-08 and 2010-11, when there was imposition of MEP on basmati rice. It may be recollected that Saudi Arabia provided an import subsidy on basmati rice between 2008 and 2009.
Price competition
Just before India removed the MEP recently, the importers had been exerting pressure on our exporters to bring down the prices in order to offer a stable price regime for their brands and protect their profitability in the absence of import subsidy policy in those importing countries. Predominantly, our exporters are supplying mostly private label and bulk packing to all major importing destinations. It is as good as exporting a raw material or commodity, so they don’t have stability in their business.
The price competition among our exporters makes them more vulnerable and pushes them to dilute the quality, and work for low margins and short-term gains. It can be inferred from the current situation that our exporters have succumbed to the pressure exerted on price by the importers. Thus, the trade was active in pursuing the government on the removal of MEP. It was also repeatedly stated that basmati paddy prices will go up after the removal of MEP, but unfortunately it hasn’t.
The situation requires deep introspection. Among the 22 basmati rice exporters, estimatedly, NPAs (non-performing assets) worth of ₹32,994 crore were referred to NCLT till recently. Competition among our exporters started squeezing the export profits, and diluting the payment period and other terms and conditions in basmati rice exports. Between 1990-91 and 2020-21, the average export price realisation has grown negligibly. Export prices have never grown in real terms during the last three decades though basmati is a premium product. The subsidy for electricity, canal water and fertilizer is estimated at $143 per tonne (13 per cent of the price), which translates into a total export subsidy of $749 million per year. Therefore, basmati rice export contains precious water footprint and input subsidy provided to the farmers. The policymakers need to consider the facts such as negligible growth of average export realisation, sustained distortion of quality and authenticity, and extending subsidy to foreign consumers. Short term gains over long term resilience will damage the foundations laid down in the battle of protecting basmati rice’s GI tag.
The GI registration for basmati rice was issued in February 2016. The lack of validation and verification of basmati rice labelling through regulatory mechanism is an issue. For example, the Basmati.Net portal has never become a tool of traceability like Tracenet for organic products. Unsurprisingly, our basmati rice has not obtained even a single GI registration in importing countries.
Perhaps, the policy focus on building the volume and value of export has led to price realisation being overlooked. Neither exporters nor farmers are likely to gain in the long term. To deliver the change at scale on authenticity quickly, the basmati rice market must be redesigned through trade incentives and penalties.
There is a risk that quality enforcement might increase the stress on exports in the short term. If the transition is well-managed, this could be the most powerful tool in the hands of the government to reshape farm incomes and the political economy of north-west India.
The writer is a global trade analyst