Rice exports need more attention

Published August 24, 2020
A villager planting rice in a field in Lahore.
A villager planting rice in a field in Lahore.

In July 2020, rice export shipments shrank to 266,206 tonnes from 365,138 tonnes in July 2019. Export earnings fell to $148.8 million from $194.5m.

These numbers released recently by the Pakistan Bureau of Statistics (PBS) do not necessarily indicate that during this fiscal year rice exports would tumble. But they bring to the fore some inefficiencies of exporters and government-run agencies.

In 2019-20, Pakistan’s rice exports fetched $2.27 billion with an annual growth rate of five per cent, according to the State Bank of Pakistan’s (SBP) foreign trade report. This increase came at a time when Pakistan’s total food export bill of about $4.36bn was down more than 5pc from $4.61bn in 2018-19, according to the PBS.

For the past few months, exporters were warning the government of the damage to the paddy crop during the ongoing second locust attack. The government claims it is fighting the second locust attack more furiously than it did during the first quarter of this year. It claims that the ongoing second attack has only slightly hurt the paddy crop that is at the flowering and harvesting stage. But exporters say the damage to the paddy crop, particularly in Sindh, is being underestimated by authorities. They say rice millers started factoring this in back in July and raised the prices of rice varieties for commercial exporters who, in turn, failed to export as much as they did in July last year.

The nation can spare 4.4m tonnes for exports as domestic consumption and contingency reserves don’t require more than 3m tonnes. But it is up to the Ministry of Commerce and our exporters to find buyers for 4.4m tonnes of rice

Even the mills that directly export rice failed to get as large buying orders as they did in July last year: their own cost of rice processing increased owing to the general inflationary trend and due to higher forward paddy prices paid to growers who were anticipating the crop’s damage under the second locust attack.

Going forward, the future of rice export earnings depends on whether exporters can manage to export 1m-1.2m tonnes of Basmati rice and 3m tonnes or more of non-Basmati varieties.

In 2018-19 as well as 2019-20, total rice shipments remained above 4m tonnes. But the exports of Basmati rice stood at 791,000 tonnes and 890,000 tonnes in 2018-19 and 2019-20, respectively. Rice Exporters Association of Pakistan (Reap) Chairman Shahjahan Malik hopes that during this fiscal year Basmati rice exports would touch the 1m-tonne mark.

Based on July 2020 statistics of the PBS, the average export price of Pakistani Basmati rice now hovers around $955 per tonne whereas that of non-Basmati rice is around $453 per tonne. With some effort, the average export price for Basmati and non-Basmati could be raised to $1,100-1,200 per tonne and $500-600 per tonne, respectively. If this happens — and exporters, particularly those of Basmati rice, say they are working seriously to make this happen — then rice export earnings could be enhanced substantially with a little increase in the volume of 2019-20 that was below 4.2m tonnes.

According to Reap statistics, the average export price of Basmati rice had shot up to $1,153 per tonne back in 2013-14. But this level could not be sustained in later years owing to fierce competition in global markets and, in recent years, also due to a huge depreciation that reduced massive gains in exports in the local currency.

The US Department of Agriculture (USDA) recently projected that Pakistan’s milled rice output during this crop year could be 7.4m tonnes against the target of about 8m tonnes set by our Federal Committee on Agriculture.

The nation can easily spare 4.4m tonnes for exports as domestic consumption and contingency reserves don’t require more than 3m tonnes. But it is up to the Ministry of Commerce and our exporters to find buyers of 4.4m tonnes of rice. This should not be a problem as lockdowns in parts of India still continue, making rice exports difficult like they were in April-June. Our exporters grabbed that opportunity during the quarter to boost rice exports.

But even if Pakistani exporters get some share of Indian rice exports, particularly in the Gulf region, overall competition in global markets this year is expected to remain tough — with Vietnam having a larger exportable surplus and with stricter rules in place for clearance of import consignments at ports of buying countries amidst Covid-19 safety measures. The USDA has projected a straight 17pc increase in Vietnam’s total rice output this year.

Maintaining growth momentum in rice exports during this fiscal year also depends on whether brisk shipments to the United Arab Emirates and Saudi Arabia remain intact. They are among Pakistan’s important markets and our rice export earnings from these two countries were 18pc of the total, according to the SBP. Owing to the unfolding of deep and surprising strategic developments in the Gulf region, it is premature to predict how these developments will eventually impact our trade in the region.

In 2019-20, our rice exports to China — the second largest market after the United Arab Emirates — did suffer because of Covid-19–triggered lockdowns earlier in China and later on in our own major cities. So the China factor would also determine to a great extent how our rice exports could grow in 2020-21.

Exporters say that unlike the United Arab Emirates, Saudi Arabia, United States and United Kingdom where Pakistan’s rice demand does not fall easily on price consideration, it does in China. This means that to boost rice exports to China, exporters will have to be more competitive than in the aforementioned countries.

That is an uphill task, more so because in China there is far greater demand for our non-Basmati rice than Basmati varieties. And the damage done to paddy crops mainly due to the second locust attack and the increase in the transportation cost after a massive rise in domestic fuel prices have pushed up the cost of procurement of non-Basmati varieties for commercial and industrial exporters.

Published in Dawn, The Business and Finance Weekly, August 24th, 2020

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