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Basmati exports at risk from EU regulations, impending Iran sanctions: Icra

In the near term, any reduction in demand for basmati rice from India will depress prices across the chain, even for those sellers who are not exposed to the markets in question

rice, rice industry
rice
Dilip Kumar Jha Mumbai
Last Updated : Sep 21 2018 | 1:34 AM IST
India’s export of basmati rice faces uncertainty after registering an impressive growth during the last financial year and the current year, so far, due to adverse developments in foreign markets.

Data compiled by Agricultural & Processed Food Products Export Development Authority (Apeda) showed India’s basmati rice exports to be at Rs 26.87 billion for the financial year 2017-18, a rise of 23 per cent from Rs 21.51 billion in the previous year. In volume terms, however, the growth in exports was marginal at 4.06 million tonnes for 2017-18 from 3.98 million tonnes in the previous year.

Going forward, however, India’s basmati rice exports are likely to remain lower, at least for the current financial year, after a robust growth reported in the first four months between April and July 2018. In fact, Indian basmati rice exporters have witnessed nearly Rs 5 billion worth of payment defaults, primarily in countries like Iran.

“Certain adverse developments, materialised and impending, in some major export destinations could materially hurt the export demand for Indian basmati rice, thereby exerting downward pressure on realisations across the chain,” said Deepak Jotwani, Assistant Vice President, Icra.

Basmati rice exports from India reported a 14 per cent jump to Rs 11.58 billion in the April to July period this year from Rs 10.15 billion for the same period last year. In volume terms, however, basmati rice exports remained flat at 1.57 million tonnes for the first four months of the current financial year, compared to 1.56 million tonnes for the same period last year.


Meanwhile, tightening of pesticide residue parameters by the European Union (EU) has resulted in a considerable decline in exports to this region (58 per cent in volume and 40 per cent in value over the January-to-July period). Trade sources expect India to gradually lose the entire European Union market of nearly 400,000 tonnes.

The decline in exports to the EU was compensated by strong buying by Iran, even though domestic 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. 

Although, in the current financial year concerns of a major loss due to the sanctions have been mitigated as the trade volume in four months of FY2019 is equivalent to 72 per cent of FY2018 imports, subsequently, the level of exports to Iran are uncertain and contingent on how future developments pan out. 
 
Another evolving concern is of Saudi Arabia following EU in tightening pesticide residue parameters. However, there has not been any final official notification regarding the guidelines yet.

Saudi Arabia and Iran, which together account for 60-70 per cent 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 those sellers who are not exposed to the markets in question. This can severely impact the profitability and liquidity of the industry given its high inventory requirement.
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