After Trump sanctions, currency crisis in Iran hits India's basmati exports

Uncertainty over the use of currency for bilateral trade has put India's basmati rice exports to Iran in doldrums following hesitation over use of the dollar after fresh sanctions levied by the United States on the Islamic country.

US President Donald Trump levied sanctions over 13 Iranian individuals and 12 entities for their support to the Iranian administration over the test of a non-nuclear ballistic missile last month. According to trade sources, Iranian authorities are hesitating over the use of the dollar for bilateral trade with friendly countries, including India. Since India has already cleared its oil dues in dollars, Iran lacks rupee denominated currencies in its foreign currency reserves which has created uncertainty over India's basmati rice exports to that country.

Trade sources believe that Iran is looking to use the euro in place of the dollar. But, nothing has been finalised yet. Hence, till the final decision is taken, India's basmati rice exports to Iran would not resume. Shipment for old contracts, however, would continue.

"India had a bilateral understanding with Iran for settlement of oil purchase in rupee. In fact, India cleared all dues emanating from crude oil purchase in dollar. Hence, the cash reserves in the rupee have exhausted. Interestingly, Iran is hesitating to use the dollar for bilateral trade in response to US sanctions on it. The Iranian administration has also not taken any final decision on the use of any alternative currency. Hence, uncertainty is plaguing India's basmati rice exports to Iran. Until the dark cloud over the use of currency recedes, India's basmati rice export to Iran is unlikely to resume," said Gurnam Arora, joint managing director, Kohinoor Foods Ltd, the producer and exporter of Kohinoor brand basmati rice.

Meanwhile, a group of over six to eight importers in Iran has set $850 a tonne as the maximum import price of basmati rice from India which Indian exporters find unviable due to a sharp increase in the prices over the last four months. Indian exporters are seeking a minimum price of $925-950 a tonne for basmati rice exports to Iran.

A senior Apeda (Agricultural and Processed Food Products Export Development Authority) official said that the government of Iran has not set any price for basmati rice import from India.

"The currency issue can be dealt with bilaterally (between buyers and sellers) through use of alternative ones like euro, yen and rupee. So, our request to exporters is not to sell basmati rice at a loss. They should wait till a clear price signal is received from the market," a senior industry official said.

Meanwhile, the price of the benchmark basmati rice in the wholesale market near New Delhi jumped by 50 per cent to trade at Rs 72 a kg now from Rs 48 a kg on October 1. Indian exporters, therefore, are seeking a similar increase in realisation from basmati exports to Iran. In the last two tenders, the average realisation works out to $650-700 a tonne.

"Iran's move to put a cap is a result of cartel of importers there. However, Iran has also reduced duty on basmati rice to 26 per cent now from 40 per cent earlier to ensure that its countrymen get rice at a lower cost. Pakistan will get some advantage of this as their logistic cost is lower due to proximity with Iran," said Rajiv Tevtiya, managing director, RML AgTech, a city-based agri technology and advisory firm.

Meanwhile, data compiled by Apeda showed India's basmati rice exports at 2.9 million tonnes between April and December of 2016, 0.1 million tonnes lower than the same period last year. Its export, however, is likely to get a boost and touch last financial year's level of 4 million tonnes by March 2017, said an Apeda official.

Of around 1 million tonnes of annual imports, Iran has purchased nearly 0.5 million tonnes from India between April and December, 2016.