Basmati prices up 5% during 21-day lockdown even as exports take a huge hit

Exporters, however, are a worried lot as Iran, the top market for Indian basmati, is among the most-affected by the Covid-19 pandemic

The firming up of prices in the domestic market has offered some relief to basmati rice exporters, whose businesses have taken a big hit, with the 21-day lockdown suspending shipments to key destinations such as Iran and other gulf countries.

Prices in consuming centres have been rising even as traders at producing centres are sitting on unsold inventory. With exports facing headwinds, farmers foresee lower sowing in the next season leading to reduced crop supply and firmer prices.

Basmati prices have appreciated by nearly 5 per cent owing to higher transportation costs and firm market demand. Top selling pusa basmati variety (PB1121) is currently trading at about Rs 65 a kg, up Rs 3-4 a kg since March 15, Mumbai-based commodity trader and exporter Devendra Vora told Business Standard.

“Basmati has gained traction after the lockdown was announced and the prices have remained firm ever since,” he said adding that bulk of the rice stock was still lying with big traders, as there are supply bottlenecks due to a shortage of transport.

Coronavirus has compounded the woes of basmati exporters, who were already reeling under the impact of the US-Iran standoff. What makes matters worse is that Iran, the top market for Indian basmati with a 33 per cent share by volume, is among the most-affected by the pandemic.

According to an Icra report, with coronavirus spreading in key export destinations, logistical constraints and business shutdowns are expected to have a negative bearing.

Moreover, the industry whose performance is largely linked to exports is expected to have a weaker first half (H1) in financial year 2020-21, leading to excess supply in the domestic market and price corrections.

“After witnessing strong growth of 25 per cent in 2017-2018 and 22 per cent in 2018-19, basmati exports moderated in 2019-20 owing to weak offtake across key markets like Iran,” Icra vice president Sheetal Sharad said.

The value of exports fell sharply from $4.37 billion (at Rs 75/dollar) in 2018-19 to $2.79 billion in 2019-20. The exports are estimated to have further moderated in Q4 of 2019-20, with the covid-19 outbreak.

All India Rice Exporters Association (AIREA) executive director, Vinod Kaul, claimed domestic rice supply had been disrupted due to the lockdown and it would take about 45 days for it to come back on track once the lockdown is finally lifted.

Iran basmati imports fell significantly in the first nine months of 2019-20. The drop was 13 per cent by volumes and 11 per cent by value over the corresponding previous year, due to the economic sanctions imposed by the United States.

In the past, Iran had dealt wiith such sanctions by utilising its reserves (receivables against crude oil exports to India) through a payment mechanism to import basmati. The same mechanism was reintroduced towards the end of 2018. With these reserves now depleting, the uncertainty regarding future trade with Iran continues.