India’s Basmati rice exports face uncertainty thanks to a tightening of pesticide residue parameters by the European Union and U.S. sanctions on Iran that could impact trade between Tehran and New Delhi, ratings agency ICRA said in a report.
Basmati exports grew by 23 percent and 14 percent in the 2018 financial years and the first four months of the current fiscal.
“The tightening of pesticide residue parameters by the European Union (EU) has resulted in considerable decline in exports to this region (58% in volume and 40% in value over Jan – July period). Nevertheless, while this was compensated by strong buying by Iran,’ said Deepak Jotwani, ICRA’s Assistant Vice President.
Basmati rice exporters have recently faced payment issues from some Iranian importers. Also, the imposition of trade sanctions by the US on Iran, which will take full effect in November 2018, may hamper trade between India and Iran, he added.
“Another evolving concern is of Saudi Arabia following EU by tightening the pesticide residue parameters. However, there has not been any final official notification regarding the guidelines yet,” Jotwani said.
Together Saudi Arabia and Iran, which account for 60-70% of total Basmati rice exports from India, can have a considerable impact on the industry. In the near term, any reduction in demand for Basmati rice from India will depress prices across the chain, even for the sellers not exposed to the export markets in question, the ICRA report said.
This can severely impact the profitability and liquidity given the high inventory requirement of the industry though the industry can draw some respite from the fact that Basmati rice is staple food in certain geographies and India is, by far, the largest supplier.
Moreover, over the longer term, the industry will be able to increase supply of compliant rice by working closely with the farmers to reduce the use of specific agrochemicals, the note added.
On the supply side, the note said, sizeable upward movement in paddy prices for past two consecutive procurement seasons is likely to result in higher sowing of basmati rice paddy in the current season.
“As a result, at the beginning of the current year’s sowing season, industry participants were anticipating a correction in paddy prices for the current harvest season. However, the recent increase in minimum support price (MSP) for non-Basmati rice paddy (common grade) from Rs 1,550/quintal to Rs 1,750/quintal, can act as a counter-balance, and consequently, arrest the anticipated correction in basmati paddy prices in the current season,” the note added.
“The demand scenario, especially with respect to the recent issues in the international market will have a bearing on the paddy prices for the upcoming harvest season. This will further determine the future price trajectory for average export realisations. Developments around trade policies of the major importing countries would be watched closely,” Jotwani said.