NEW rice marketing season is bringing good news for growers and domestic traders, but compounding problems for exporters whose competitive edge is being eroded by increase in paddy and rice prices.
Exporters say that prices of long-grain aromatic paddy have risen to Rs2000-Rs2100 per 40kg making it difficult for them to produce super Basmati at competitive prices for international market amidst growing competition with India. Prices of milled Basmati rice have also gone up to Rs3200-Rs4300 per 40kg depending upon whether the rice is of old crop or of new crop and whether it is polished. Old, polished and longer-grain rice varieties usually fetch higher prices.
According to rice dealers at Jodia Bazar in Karachi and at Akbari Mandi in Lahore, prices of super Basmati in the two commodity trading hubs have increased to Rs4200-Rs4400 per 40kg, from Rs3600-Rs4000 per 40kg before the start of the new marketing season in October. They say that these prices are relevant for buyers of up to 10 bags of 100kg, and those who buy larger quantities, like exporters, often pay a lower rate.
What lends credence to the argument that high prices are affecting rice shipments is that the exports of Basmati fell more than 50 per cent to 36,000 tonnes in October this year from 75,000 tonnes in October last year.
Overall exports of Basmati in July -October 2012 also plunged 52 per cent to 168,000 tonnes from 353,000 tonnes in the year-ago period.
Exports of non-Basmati varieties fell to 121,000 tonnes in October this year from 184,000 tonnes in October last year. And in July-October 2012, exports of non-Basmati rice also declined to 333,000 tonnes from 531,000 tonnes in the same period of 2011. But why on earth are domestic prices so high during this season that they have started biting into exports business?
“Basically investors-led buying is pushing up the prices,” insists a former REAP Chairman Javed Islam Agha. Rice output in this season is not estimated below that of the last season. Indeed the estimate is a bit higher—6.9 million tonnes against 6.7 million tonnes of last year, according to the latest Food &Agriculture Organisation (FAO).
Ministry of Food Security and Research is not as optimistic, but its officials also say rice production of this year would be closer to that of the last year. And a recent physical survey of rice fields in Sindh carried out by REAP showed that paddy crop was not hit as hard by monsoon rains as it was being speculated earlier.
“I think crop size is not a big issue. A bigger issue is the entry of heavyweight investors in rice business,” Agha told Dawn over telephone.
“These investors have started buying both paddy and milled rice in large quantities and they are making big money on gradually offloading their newly built-up stocks.”
Businessmen associated with rice trade say that aggressive buying by Engro Food is another reason for recent hike in local rice prices. They say that the company has set buying target of 100,000 tonnes for this season and is aggressively pursuing it through its eight procurement centres in Punjab.
No official of Engro Food was available to verify or reject this claim but sources in Engro Food confirmed the company was engaged in aggressive paddy buying as it had plans to export more this year than in the last year.
They also said that in the last marketing season the company had to suspend local rice buying for some time when prices had shot up in the middle of the season. “This year our strategy is to meet the buying target in the early part of the season to have enough stocks both for exports and for local market,” one of the sources explained. Engro had reportedly exported 12,000 tonnes of rice in the last fiscal year.
It is not just heavy paddy/rice buying by one major corporate that has irked exporters. “Many individuals and businesses who are not known exporters of rice are involved are purchasing big quantities of rice and stocking it for profit taking,” an executive member of REAP confided to Dawn.
Commodity traders in Karachi confirm this adding that lately they have been approached by wealthy individuals mostly from the interior of Sindh who want to sell rice. “When we talk to growers and traditional suppliers of milled rice they say they are short of stocks but then some other people call us to tell that they have huge stocks (of rice) which they are ready to sell. Normally they demand much higher prices than what the market is ready to pay,” said a Jodia Bazaar-based dealer. But he also pointed out that in last few years some rice exporting companies had successfully created demand for their local brands of the commodity.
“Some of the additional buying of paddy is meant for production of branded rice packs for local market and part of it is coming from wealthy individuals who just track international prices on their own or through PMEX index and make moves accordingly,” he said pointing to a recent upward trend in international rice prices.
Exporters also confirm that internationally rice prices have started moving up adding that it is actually good for them. “Indian Basmati rice is now selling around $1200 per tonne against less than $1000 per tonne a couple of months ago. So one way of looking at it could be that we may catch up with Indian competitors somewhere down the road a couple of weeks from now,” said a Karachi-based rice exporter adding that for most Pakistani exporters the ideal price for super Basmati, which is far superior to that of non-aromatic Indian version, works out to be around $1300-$1400 per tonne.
“And don’t forget that recent rupee depreciation would also help us compete with the Indian rivals in our export shipments of December onwards. Besides, rice exports to China are growing fast. Last year we exported about 800,000 tonnes to Chinese buyers and this year rice exports to Chinese markets may exceed one million tonnes. So, all is not bad on rice exports front though issues remain. ” Exporters point out that the long-standing issue of marketing of Indian Basmati in the name of Pakistani Basmati needs to be settled to give a real boost to exports of Pakistani rice. “India has captured part of Iranian and part of Middle Eastern rice markets through this misdeclaration and we haven’t been able to sort it out.”
Some exporters like Mrs Shahnaz Zafar, member managing committee of REAP say that at the root of the recent hike in paddy/rice prices has delayed harvesting of paddy crop this year. They say that prolonged power breakdowns in summer which had affected availability of water in fields had delayed sowing of both Basmati and non-Basmati varieties and eventually led to delayed harvesting this year.
“Arrivals of paddy was particularly delayed with the result that exporters-led buying downsized last year’s stocks. That’s also why prices shot up when the new crop entered the market,” Mrs Zafar told Dawn.