Indian exporters of basmati rice, who have been facing uncertainty due to tensions between leading buyer Iran and the United States, will probably breathe easier with the launch of a futures contract that will enable hedging against such risks.
The National Commodity and Derivatives Exchange Ltd (NCDEX) will today launch a basmati contract called Pusa 1121, named after the most popular Indian variety that has strong demand in the Middle East region including Iran.
Delivery centres for the contract will be in India’s rice heartland northern state of Haryana, with a core delivery centre at Karnal and another one in Sonipat.
India contributes about 23% of the world’s total rice production, while for the premium basmati rice variety it commands a 70% share, the bulk of which is exported, mainly to the Middle East including Iran.
India’s basmati rice exports in the fiscal year ended March 31 rose by 47% to $4.71 billion, showing the whopping demand for this rice variety for which it has little competition except from neighbouring Pakistan.
However, the trade has faced increased uncertainty recently following the end of US sanctions waiver since May on Iranian sales of crude oil to India and 7 other countries, which were previously granted exemptions.
The decision sparked fears that a pool of Iranian funds– lying in Indian banks against sale of crude oil–which were being used to finance the rice shipments, may run out eventually. However, officials say there is enough funds to keep the rice shipments going in coming months.