KARACHI, March 9: A large number of rice exporters have failed to meet their export contracts worth millions of dollars owing to sudden rise in prices in the domestic market.
Short crop, hoarding and availability of cheap finance with big export houses and traders have been attributed to be among a host of factors which resulted in a spurt in rice prices.
Presently, a price war is going on between exporters and rice millers, with the former on the receiving end as they have to meet their already committed export contracts worth millions of dollars.
However, some observers cited the availability of bank finances at cheap rates as major cause of the crisis as well as price-hike in rice and other essential commodities.
As the blame-game is going on in rice trade and the government seems to be a silent spectator, it has put the rice export target at risk.
Last year rice exports fetched around $1.2 billion.
For eight months (July-February), a record trade gap of $8.89 billion, that is 18.47 per cent higher as compared to last year, is a cause of great concern, observed President Union of Small and Medium Enterprises (Unisame) Zulfikar Thaver.
Trade circles believe that rice millers, traders and stockists, with access to bank finances, hoarded large stocks of rice, thereby pushing up prices to an unprecedented level within two months of current crop harvest.
It is being apprehended that if the State Bank of Pakistan (SBP) did not squeeze bank-financing for rice exports, it will further aggravate the situation and prices may even move higher.
However, some rice traders are of the opinion that short crop has created panic in the domestic market and exporters committed with big export contracts entered the market in order to ensure their supplies in a short period which created nervousness in rice trade circles, and some took it as an opportunity to make big profits.
Nevertheless, it is being strongly rejected by a section of rice traders who firmly believe that the short crop in Basmati rice could be justifiable, but as far as Irri-6 is concerned, the crop size was normal.
The winter rains, coupled with strong winds and thick fog, did damage the standing paddy in Punjab, but as for Sindh the situation remained normal and Irri-6 crop size is close to last year’s production of over 2.2 million tons.
The old stocks of super basmati, which were being sold at Rs26 per kg in the wholesale market in December 2006, are now being sold at Rs45 per kg, thereby giving a huge premium of Rs19 per kg to hoarders.
Similarly, the new crop super basmati which was being traded at Rs27 per kg in December 2006, is now being sold at Rs40 per kg.
Prices of non-basmati variety PK-386 and Irri-9 were at Rs22 per kg and Rs15 per kg, respectively, during December 2006, and now these varieties are being sold at Rs35 and Rs23 per kg, respectively.
The non-basmati rice is normally not exported, but in order to make big money, boarders and stockists have cornered huge quantities of these varieties. However, some traders told Dawn that these non-basmati varieties are also used in mixing with super basmati to bring down prices.
Small and medium rice exporters, who have suffered a lot under the current market situation, stated that the SBP’s export finance scheme (EFS), which is primarily available for value-added commodities, was also allowed to rice exports in 2000. EFS is operated in two parts i.e. part-I and part-II.
Under part-I, the finance is given to exporters on pre as well as post- shipment basis for 180 days whereas under part- II, an exporter may avail the export finance limit based on half of his previous year’s export.
Rice exporters belonging to small and medium sized setups were unanimous in their view that EFS part-II is being mostly misused by big export houses who avail huge banks limits against stocks pledged at current rate of nine per cent and after paying banks mark-up they dispose of their rice stocks in open market at much higher prices and make windfall profits at the cost of export trade and common consumer.
Undoubtedly the EFS of the SBP had geared up rice exports from $500 million to $1.2 billion, but now this facility, exporters alleged, is encouraging hoarding, black-marketing as the crop size of rice for the last three years was not making any remarkable progress and is almost stagnant or has somewhat declined, thereby creating a price- hike.
This scheme should be immediately withdrawn from rice trade and instead be given only to those exports which are based on value-addition.
There is also a strong demand that small and consumer packing exports should be encouraged and this scheme of SBP under EFS part-II be given on such rice exports only.
The country loses huge foreign exchange by exporting rice in bulk which is further processed and packed by foreign buyers in consumer packing.
The export of brown rice should also be banned as foreign buyers take full advantage of this low- cost rice by making value-addition in their setups and market it at higher prices in the world market.
Exporters have asked the ministry of commerce to stop rice exports on D/A (document against acceptance) because in most cases, remittances do not reach country as importers refuse to pay or seek cuts on different but lame excuses of quality.
Due to on-going price war between different stakeholders in rice trade, the president of the Unisame Zulfikar Thaver has invited the attention of provincial secretary, ministry of agriculture, Mahkumdin Qadri, to the difficulties being faced by rice exporters due to the un-business like behaviour of rice millers of Sindh.
In a written complaint to the secretary, Mr Thaver complained that some of the millers have made cartels and are indulging in bad business practices by stopping deliveries to exporters to pressure them to pay higher prices.
He said these millers went to the extent of observing strike and paralysed rice supplies to exporters who are committed in export contracts.