Covid pandemic may pull the plug on basmati exports

The Covid-19 outbreak in Iran, one of the largest importers of basmati rice from India, has added to the woes of the rice industry.

With the virus still spreading rapidly in key export destinations, logistical constraints and business shutdowns are expected to have a negative bearing on the industry. Similar constraints will also impact the domestic market, according to an ICRA research report.

ICRA research report predicted

Basmati rice prices in the domestic market are also expected to fall with weak demand in export markets in the first half of this fiscal.

Sheetal Sharad, Vice-President, ICRA, said that after witnessing a strong growth of 25 per cent in FY ’18 and 22 per cent in the following fiscal, basmati rice exports moderated in the first nine months of FY’20 owing to weak offtake across key markets, including Iran.

The value of exports fell from ₹32,804 crore in FY2019 to ₹20,925 crore in nine months of last fiscal. Exports are estimated to have further moderated in March quarter, and now with the Covid outbreak, the uncertain scenario in basmati rice exports has deepened, said Sharad.

Fall in Iran imports

Basmati rice imports by Iran, which accounts for 33 per cent of total exports from India, fell 13 per cent in volume and 11 per cent in value terms over the previous year.

In the past, whenever sanctions were imposed, Iran utilised its reserves (receivables against crude oil exports to India) through a payment mechanism to import basmati rice from India.

The pandemic only worsens the near-term concerns and prospects. Basmati rice is the staple diet in Iran and the current circumstances make recovery in export unlikely over the next two quarters.

Exports to Saudi Arabia

Purchase of basmati rice by Saudi Arabia, which accounts for 20 per cent of India’s basmati exports, was higher by 12 per cent at ₹4,246 crore in the first nine months of last fiscal. The new import rules by the Saudi Food and Drug Authority is likely to slow down imports in the near term as it would take time for the industry to develop adequate sources of compliant paddy.

While exports to European Union dropped 32 per cent in FY’19 to ₹1,590 crore, a 13 per cent decline, with exports valued at ₹1,011 crore in the nine months of FY’20.

Prolonged supply disruptions and lockdowns can lead to lower sowing in the next season, leading to a reduced crop supply firming up paddy prices in the coming season.

Key factors

Anupama Arora, Vice-President, ICRA, said demand prospects from key destinations such as Iran and Saudi Arabia will determine trade prospects in the medium term.

Availability of a secure payment mechanism for exports to Iran, easing/ removal of sanctions by the US and the containment of the pandemic in the destination country will be the factors that will determine the prospects of basmati rice trade. Given that the industry is cyclical, weak prices in a year can result in lower acreage in the next season, thereby balancing the demand-supply gap and limiting the further contraction of prices, said Arora.

Source; BL