Rice export price hike not to affect domestic prices

Fears of inflation ahead of elections next year and concerns over shrinking rice stocks have led the government to raise the export price of the grain, but the move will have little impact on prices of common varieties consumed by bulk of the people.

Widely perceived as a pre-emptive measure, the government last week raised the floor price for export of non-basmati rice to $650 a tonne from $500, and also introduced a minimum export price of $900 a tonne for basmati rice.

It canalised export of rice through only four ports "" JNPT, Mumbai, Kakinada and Kolkata, with the objective of keeping rice prices, which have risen by about 30-40 per cent in the last one year, under control.

"If exports surge, they could trigger a domestic shortage, which the government would want to guard against, particularly in an election year," said a senior official with a multinational trading house.

Analysts said the government was also overtly concerned that prices of essential items such as wheat, rice and sugar should not spiral ahead of elections in 2009.

India's headline inflation rate based on the Wholesale Price Index has risen to a nine-month high of 5.02 per cent for the week ended February 3.

RS Seshadri, a senior official at Tilda Riceland "" a leading basmati exporter ""said rice prices rose across the board this year primarily due to a sharp increase in basmati prices.

To hedge against appreciation of the rupee against the dollar, exporters jacked up basmati rice prices, and passed on part of the benefit to farmers, Seshadri said.

Latching on to the opportunity, farmers also raised prices of other varieties of rice.

Since the increase in prices was not directly due to higher exports, the increase in the minimum export prices of non-basmati rice is unlikely to now bring down prices, Seshadri said.

VK Arora, head of LT Overseas "" another rice exporter "" concurred. He said the ban will mainly limit export of rice varieties priced over Rs 26 a kg. "These varieties are anyway premium varieties and lower exports will not really have any impact on prices," he said.

India annually exports about 3 million tonnes non-basmati rice to African and South Asian countries and a little over 1 million tonnes of basmati rice to the US, European Union, Saudi Arabia and Canada.

This year, non-basmati exports are seen about 50 per cent down on year due to the introduction of the minimum export price, while basmati exports are seen marginally higher at about 1.2-1.3 million tonnes.

The official with the multinational trading house, who did not wish to be identified, said though prices of rice will not ease due to lower exports, these curbs will be beneficial for the government in the long run.

He said globally, rice stocks are hovering around a two decade low, and the shortage is expected to worsen in the coming years as consumption grows.

Rice production is low in a number of exporting countries, which could prove to be a boon for Indian exporters, as output in India this year is seen at a record high of 94.08 million tonnes.

Thailand and Vietnam are among India's key competitors in the export market.

Shrinking stocks
Seshadri said raising the minimum export price of rice is probably a precautionary measure, considering that the government's stocks are already very low.

Over the past two years, the government has increased rice allocation to states under government-run welfare schemes to conserve its dwindling wheat stocks. The impact of the move is being felt now.

As on March 1, the government had 9.25 million tonnes rice in the central pool, down nearly 40 per cent on year, and it seems unlikely that the government will be able to meet the April 1 rice buffer norm of 12.2 million tonnes, with states lifting good volumes.

The government was forced to import 5 million tonnes wheat in 2006 and 1.8 million tonnes in 2007 due to falling government stocks and rising prices.

A similar scenario in rice cannot be ruled out.

Seshadri said unlike wheat, rice is not easily available in the international market. Of the total global rice output of about 492 mln tn, only about 3% or 26-27 mln tn is traded.

"If India needs to import rice, which is not entirely impossible looking at the current stock levels, it will not be able to do so at the drop of a hat," he said.

The official at the multinational trading house said another reason for raising the minimum export price of non-basmati rice could be putting a curb on illegal export of cheaper rice varieties to Bangladesh, where demand for Indian rice is high due to a local shortage.

"Many traders were over-invoicing non-basmati rice exports to Bangladesh and under-invoicing basmati trades to camouflage illegal deals. Such deals will get difficult now," he said.

"There seems no other reason for setting the floor price for export of basmati rice at $900 a tn, particularly when the current export price of basmati is around $1,450 a tn, free on board," he said.

The increase in the export floor price of non-basmati, as expected, has not gone down well with all sections of trade.

The move will hit exports of 'ponni', 'matta' and 'sona masuri' grades of premium long grain non-basmati rice that are exported to the U.S., EU, Australia and South East Asia, P. Vishnukumar, head of South India Rice Exporters' Organisation said.

He said the about 10,000 tn of such long grain rice varieties are exported monthly to countries with a large non-resident Indian population.

Vishnukumar said the organisation has written to the commerce ministry, requesting for a review of the partial export ban.

Traders said curbs on these premium grade varieties were unlikely to benefit the poor, which perhaps was what the government was aiming to do.