Delay in resumption of imports by Iran is likely to hinder the recovery in Indian Basmati rice exports, says credit rating agency, ICRA, in its latest update note on Indian Basmati rice industry.
ICRA has estimated this as a temporary delay, considering Iran's insufficient domestic rice production and depleting inventory levels to meet its demand.
In ICRA's view, the price cap of USD 850 per metric tonne (MT) could pose further hurdles for the Basmati rice industry; given that during the current procurement season average Basmati paddy prices have been higher by 20-25 percent. Thus an inflow of orders from Iran, even after the import ban is lifted, remains to be seen.
"Iran is a major export destination for Indian Basmati rice and decline in demand from Iran has played a role in the declining realisations of exports from India - from USD 1298/MT in FY2014 to USD 784/MT in FY2017," said Deepak Jotwani, Assistant VP, ICRA Ltd.
Iran is amongst the major importers of Basmati rice from India. However, over the years, the Iranian Government has imposed a ban on import of Basmati rice from time to time, as per the movement in inventory held by its rice traders and also to safeguard the interests of its local farmers. Iran last imposed a ban on import of Basmati rice in July 2016.
Given that the ban persisted against industry expectations, the Government of India sent a trade delegation to Iran in January 2017 to resolve the issue. Following this, it was expected that the import ban would be removed soon. While there has been no official notification from Iran, a group of large Basmati rice importers in Iran have recently capped the price of Basmati rice imports at USD 850/MT.
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In another adverse development for the industry, the US has recently imposed fresh trade sanctions on Iran, which restrains Iran's use of the US dollar for trade. These two developments have created uncertainty around the resumption of Basmati rice exports to Iran.
While Basmati rice is consumed across the globe, West Asian countries continue to account for most of the imports (75 percent of Indian Basmati rice exports in FY2016). Within West Asia, Iran and Saudi Arabia are the two largest buyers, together accounting for 40 to 50 percent of total Basmati rice exports from India.
In the past, Iran had been placed under economic sanctions by the USA, Europe and the United Nations, following which the Government of India implemented the rupee payment mechanism through UCO Bank to facilitate trade between India and Iran. This led to a surge in Indian Basmati rice exports to Iran (primarily Pusa 1121 variety) over FY2013 and FY2014 and it emerged as the largest importer (37 percent) of Basmati rice from India. However since then, exports to Iran have largely been on a downward trajectory owing to the import bans imposed. This has reflected in declining export realisations for the last few years.