India — the world’s rice raja

Paddy cultivation is highly water-intensive. A good monsoon and improved acreage in this kharif season portend higher output of milled rice in 2013-14 — more than the highest of 104 million tonnes (mt) rice in 2011-12. Production of both basmati (8-9 mt) and non-basmati (98-100 mt) is likely to surpass the earlier record.

For the second year in a row, India will again be the world’s “Raja of Rice” exports in 2013-14, touching about 11 mt ($6.5 billion or Rs. 40,000 crore) against 10 mt last year, with a basmati (fragrant/aromatic) component of 3.5-4 mt and non-basmati 6.5-7 mt. Monthly shipments at present are 0.85 mt per month. Buyers abroad are expecting a new crop at lower export prices from October 2013 onwards, for the next round of contracting.

Vietnam and Thailand will fall behind, each exporting about 7-8 mts. Pakistan’s tonnage may not exceed 3 mt. China, the world’s largest producer (135-140 mt), is a net importer of about 3.5 mt. World rice trade is at 38 mt and India’s share will be 28 per cent. India’s enhanced export volumes are a result of queer market-centric developments. These include an irrational Thai paddy policy, no viable competition for Indian parboiled rice, part of African requirements shifting from Vietnam to India and higher demand pull from Iran against rupee payment for hybrid 1121 basmati.

The Food Security Ordinance (FSO) is unlikely to affect market availability of rice this year. Rupee depreciation to Rs 60 or more will be supportive of exports and offset higher domestic prices, due to increased MSP and local demand.

India will still be carrying “official” surplus grains of about 30 mt ($11 billion or Rs 66,000 crore) due to the Food Ministry’s passivity on exports and poor local offtake. This is notwithstanding a CAD of 4.8 per cent of GDP, with a forecast of 5.73 per cent by December 2013. Maize exports may decline as international values tumble in the coming months. Any intervention by the Government for augmenting maize stocks under FSO will be negative for exports. Rice exports from the open market are thus vital.

Basmati rice

The Indian Agricultural Research Institute’s hybrid basmati technology (1121 and the newer 1509) has a yield of 5-6 tonnes per hectare with less water consumption, lower cropping period, reduced wastage, and enhanced elongation characteristics. Indian scientists need to be nationally recognised for this development as it offers high yield benefits akin to GMO crops, without being so. Additionally it offers a splendid cost-benefit package. The cost of production of rice in both segments is virtually the same, at around Rs 17/kg, while realisation at wholesale from basmati is Rs. 56/kg and non-basmati Rs 22-23/kg. In export markets, the realisation is Rs 72-90/kg. Basmati commands a “brand premium” of almost 3 to 4 times depending upon supply-demand equation.

Iran is expected to procure around 1.5 mt 1121 rice at around $200-500 fob/t. Iranian export is largely monopolised by the millers or exporters in North India — Punjab, Haryana and Uttar Pradesh. The traditional markets of West Asia, including Saudi Arabia, are expected to buy 2 mt of basmati. These will be serviced from Kandla or Mundra ports on the west coast.

Non-basmati rice export is now the forte of millers and traders of the south-eastern States through the port of Kakinada. This includes paddy/rice from Chhattisgarh, Bihar, Jharkhand and Andhra Pradesh.

Non-Basmati Rice

The hub of activity has shifted in and around Kakinada where millers have established parboiling, de-husking, milling and sorting facilities. The eastern States have a local freight advantage for shipments from Kakinada. Some of the heavily subsidised rice/paddy under the targeted PDS also filters into export channels.

Nigeria, Benin and South Africa are covering a larger tonnage of “parboiled rice” from India.

Their business with Thailand is restricted due to the prohibitive cost. Indian parboiled is traded at $430 fob/t vs Thai at $530 fob/t. Poor quality paddy illegally brought from Myanmar, Cambodia and Vietnam to Thailand and processed thereafter is also adversely affecting its reputation.

Government controls in Thailand have converted that nation from the world’s prime exporter to net importer and hoarder, threatening its financial foundation. Some lessons can be drawn by India’s policymakers from this experience.

In West African countries (Senegal, Cote d'Ivoire, Benin, Somalia, Togo, Kenya, Cameroon), the Indian 25 per cent broken “white” variety is “now” getting about 10 per cent price preference over Vietnam due to better elongation/expansion of cooked rice. Bangladesh, Yemen and Iraq are also prominent importers of Indian non-basmati rice.

Pakistan is facing stiff competition because of India’s aggressive entry. Vietnam and Thailand are merely servicing the Far Eastern market of China, Indonesia, Malaysia and the Philippines, with a total demand appetite of about 12 million tonnes. Vietnam is also facing controversial quality issues in the US.

Export vulnerability

India is vulnerable to the reversal of Thailand’s paddy pledging policy. The Thai government is under increasing pressure to minimise its losses to safeguard its rating. If Thais decide to book subsidy losses of about $5 billion for 18 mt hoarded by them, the world’s rice trade could be in for a strange experience.

Market distortions created by US sanctions against Iran and populist policies in Thailand have helped India. This is an opportunity for the Indian rice trade to strengthen itself in the coming years.

(The author is a grains trade analyst.)