With the rice season just around the corner, farmers might fare better with an initial indication of improved prices for their crop.

The hybrid coarse varieties, which were sown in April in the central Punjab area, have gained an almost 50pc price increase — from Rs600 to Rs900 per 40kg — in the last two weeks. This is despite the fact that early paddy always fetches a lower price as it contains more moisture.

For basmati, the Punjab government has been engaged in marathon sessions with the Rice Exporters Association of Pakistan (Reap) and farmers to arrive at an agreed and reasonable price. Reap is offering Rs1,500 per Kg. The farmers, however, are sticking to Rs1,700 per 40kg. Even if the Reap offer is accepted by farmers, it would represent a 36pc increase over Rs1,100 per 40kg average price last year.

The context for better rice price was set this year by two factors. Firstly, Iran opened its market after a hiatus of three years and helped clear the rice glut with exporters. According to Reap, almost 250,000 tonnes were sent to Iran before July 22, when it slapped a ban on imports because its own crop was arriving in the domestic market.

Farmers and government officials think that exporters are painting a gloomy export picture for some reason. Otherwise, the situation is not that bad

Secondly, the Punjab government held a number of trilateral meetings (involving the agriculture department, exporters and farmers) to ensure that basmati price does not hurt farmers. The provincial government arrived at the price of Rs1,700 per maund, after including a 25pc profit for farmers. The cost of production has come down by almost Rs150 per maund this year because of various official interventions, including subsidy on fertiliser, reduced diesel prices and reduced rates of electricity for tube-wells.

All these factors have created conducive business environment — especially because rice trade, particularly the basmati variety, has been in a crisis for the last few years; in which all major stakeholders — farmers, shellers and exporters — were hit. But last year, exporters made some money when domestic prices crashed.

However, exporters still maintain that it might be a tough year for exports. Iran has banned import from Pakistan, initially for four months, but it can be longer than that if their crop turns out to be a healthy one. In the largest market for rice — the Gulf region — the Indian dumping of rice is a major problem. Exports to other regions are almost negligible and do not offer much hope.

However, farmers and government officials think that exporters are painting a gloomy export picture for some reason. Otherwise, the situation is not that bad. Iran’s ban will soon be lifted because only two Iranian provinces are allowed to sow rice, which cannot cater to their own demand of 3m tonnes. So, one cannot rule the market out for the rest of the season. The Gulf might have had its financial crisis, but ethnic clientele, the main consumer of basmati rice, is still big enough, and rich enough, to help sustain imports from Pakistan.

Pakistan exported 3.2m tonnes in 2014-15 and was able to increase it to 3.7m tonnes next year, earning $1.86bn. On average, basmati export prices sustained a level of $900 per tonne, which translates into Rs2,500 per 40kg for paddy.

Farmers are demanding only Rs1,700 per 40 kg, leaving a healthy margin for exporters. If an exporter still concedes that export figures will not be less than last year, they could cross the $2bn mark due to international price trends.

The government sponsoring negotiations between farmers and exporters is a healthy sign, but only offers a seasonal solution. The huge subsidies that the government has offered in the last one year, is also not sustainable model. Farming still needs to be modernised.

Published in Dawn, Business & Finance weekly, August 29th, 2016