For the four months ended FY16, PBS numbers show a 24 percent surge in the quantity of rice exported year-over-year, but a 6 percent decline in dollars earned. The plot thickens when one looks at the types of rice – in both dollar and quantity terms. Basmati exports have plummeted over last year while non-Basmati exports have gained tremendously. Recall that Basmati is of superior quality and more expensive, so its margins are higher. What went wrong?
This column has discussed the issues of Pakistan?s rice industry at length (Read “Rice: another dying commodity,” published on October 20, 2015). To recap, the main issues highlighted by industry sources were low international prices, a high cost of doing business, and a lack of research in Basmati. However, there have to be some factors other than these for this free-fall of Basmati exports over last year; for the four months ended FY16, the volume of Basmati exports was lower by 34 percent year-on-year. Meanwhile, non-Basmati rice exports shot up around 40 percent. What explains this shift from a premium-priced Basmati to inferior type exports?
Wajid Paracha from REAP told BR Research that the answer to this can be found in lower buying from Iran, which happens to be Pakistan?s largest market for Basmati rice. Pakistan was already having trouble in the Iranian market for Basmati thanks to India, as also confirmed by Guard Rice CEO Shehzad Malik, who added that India has been producing evolved Basmati varieties that give twice the yields.
Iran happened to be an important market for India as well. Since last year, however, Iran stopped importing, perhaps owing to its own stockpiles, or perhaps in anticipation of the removal on sanctions and access to a broader market. Moreover, Wajid Paracha said the inspection standards of Iran had been raised as well.
So, Pakistan lost its biggest Basmati market, as did India. As a result, India began slashing its prices and aggressively marketing its Basmati in other markets where Pakistan was present as well. This explains the enormous drop in Basmati exports as of late.
As for the rising non-Basmati exports, Shehzad Malik said that there have been significant developments in other seed varieties. He said that the private sector has done a lot of work (particularly in Sindh), introducing hybrid rice technology that gives twice the yield and reduces the cost of production. It may thus be the case that growers are now opting for non-Basmati varieties.
While there’s no arguing that the commodity crunch is playing a huge role in our exporters’ troubles, one can’t ignore the fact that the dollars earned could easily be higher if Basmati is given due emphasis.