KARACHI: Availability of cheap capital from internal banking sources and rush of foreign traders played havoc with rice trade when profiteers and hoarders took prices to an unprecedented level, thereby depriving consumers from average staple cereals diet.

Never in the past rice had been subjected to such business tactics where prices could be seen soaring in days and weeks with the start of new harvesting season of paddy. On the contrary with the advent of new harvesting season rice prices normally come under pressure to shed couple of rupees on improved supply position.

The surge in rice prices began when harvesting of new crop began in December last and immediately followed by reports of short crop in India and Pakistan, which spread like jungle fire. This created a panic like situation because rice traders jumped in to safeguard their interest and only those having huge liquidity or having big bank limits managed to promote their business.

Consequently, rice millers, traders and exporters who have huge finances as well as export refinance under schedule II of the State Bank facility lifted huge quantities of new crop, which pushed prices exorbitantly high in the domestic market. Some reports indicate that world traders also pumped huge funds and managed to hoard very large quantity of the new crop.

There is a strong demand from small and medium sized exporters to withdraw export refinance on essential commodities like rice because it is a cash crop and Pakistan hardly have any carryover stocks of most of the rice varieties with the exception of basmati rice, which fetches more price if it is seasoned and is at least one year old.

Furthermore funds coming from world traders also made their way into rice trade which further aggravated the situation and even today most of rice stocks are held back in the country.

The State Bank export finance under Part-I, however, should stay as it only provides a running finance on consignment to consignment basis and it has to be paid back within 180 days from the date of opening of letter of credit (L/C).

Presently, old stocks of super basmati are being sold at Rs47 per kg which means that a premium of Rs21 is being bagged by hoarders and stockists hold huge quantities from the last crop. Similarly, super basmati from new crop was available at Rs27 per kg in December 2006, is being sold at Rs43 per kg. This show that how windfall profits are being made by those who have the capacity to hold stocks on availability of huge funds from banking sources.