ISLAMABAD, Feb 10: Exporters of basmati rice face acute financial crunch due to unsecured credit sales based on documents against acceptance (D/A) allowed by the State Bank of Pakistan (SBP), Dawn has learnt.

The SBP requires basmati exporters to export double the value for which the export refinance is provided to them. This force the exporters to sell at low prices with long-term supply contracts to achieve the double export performance demanded by the central bank.

Informed sources told Dawn that some of these hapless exporters were now being threatened by their buyers that they must ship the next order at a price much below their cost otherwise they might not get payment for the last shipment.

The basmati prices have increased by over 25 per cent in just two months in domestic as well as overseas markets because production has fallen and the overall demand increased, the sources added.

According to the sources, the system in place by the SBP only benefited the biggest exporters of rice, who manage such sales due to their financial muscle with local banks for suitable export document discounting facilities. They also have their own offices abroad for negotiating prices or obtaining payment.

Unfortunately, the small exporters can only obtain small facilities by mortgaging even the homes they live in and have no security for getting payment except to wait and further accept undue demands of the buyers, the sources added.

Zahid W. Khawaja, a rice exporter from Lahore told this reporter on telephone that in broader national interest, SBP should actually abolish the unsecured D/A requirement for basmati rice exports and allow only advance payment terms, cash against documents (CAD-on sight), letter of credit (L/C on sight) and the secured credit sales should only be allowed up to 150 days maximum against L/Cs.

The exporters also need to realise the ground realities and adjust their business models accordingly. They should not sell without procuring a major portion of stocks they sell.

Mr Khawaja said exporters should not sell on long-term contracts at fixed prices in view of the volatile situation and commit sales only for prompt shipments with price negotiable preferably after every two months. They should actually make an effort to be transparent with their buyers regarding market situations and try to retain them at best possible.

Indian basmati is priced at $950 per ton and over, Indian Pusa, that is actually a non-basmati in our definition, is selling at over $750-800 per ton and the Indian Pusa 1,121 variety is selling at around $1,000 per ton. Compared to this Pakistan’s super basmati was earlier sold at around $650 or lower, while our basmati-385 was sold at around $525 or lower for a long time. Now buyers may have to pay much higher prices. Pakistan can take long-term advantage of the situation if D/A shipments are disallowed and matching export performance equal to export refinance allowed.

Past experience showed that Pakistani exporters sell their basmati cheap while Indian exporters sell a look-alike non-basmati-Pusa- at higher than Pakistan basmati prices due to better financial muscle and marketing strengths.

To address this situation, Mr Khawaja said, ”The SBP needs to help by developing the muscle in enabling our exporters to resist low priced sales and demand higher prices through allowing annual matching export performance equal to export refinance loans and disallowing D/A sales.