Exporters stuck with Rs 5,000-cr cess-infected rice

NEW DELHI: Basmati traders are stuck with paddy worth Rs 5,000 crore as they have failed to find takers for the rice in the global market. Indian basmati has lost huge markets over the past few months following the imposition of export cess that has made it costlier by over $400 per tonne compared to the Pakistani basmati, according to trade experts.
The finance ministry is yet to remove the export cess which was imposed in April 2008 in the wake of a domestic supply crunch. The Prime Minister���s Office had referred the matter to the finance ministry after repeated pleas from traders who were sitting on the high-priced stocks which they were unable to sell. The actual shipment of exports are yet to take place, leaving basmati traders high and dry with the highly-expensive produce they have bought from the farmers. Besides the cess of Rs 8,000 a tonne, Basmati exporters have to follow the minimum export price of $1,200 per tonne for contracting a shipment.

Traditional buyers from West Asia and Europe have bought no more than 10% of what they usually buy at this time.

Basmati is single crop and, generally, export contracts are entered during October-December to finance the paddy bought from farmers. Despatches against the contracts take place throughout the year. Not expecting the dual burden of export cess and the falling Pakistani rupee, exporters paid a handsome price to farmers in Haryana and Punjab compared to their counterparts in Pakistan. What has helped Pakistani basmati cock a snook at its Indian counterpart is also the fast-depreciating Pakistani rupee, global recession, plunging commodity prices and shrinking demand. Together, these have ensured that Pakistani basmati is at least $400-500 a tonne cheaper. Traders hold that while a premium of $100-150 a tonne over Pakistan is sustainable, a premium of $400-500 is impossible to maintain. Pakistan has had a bumper crop and with the Pakistani rupee ruling at 82 to the dollar and the economy on the downslide, it is pulling out all stops to capture the Indian basmati market. ���The supermarket shelves now adorned by Pakistani rice in Europe were fought and won after decades of investment and hard work,��� stressed a trader from a top basmati exporting company.

Traders maintain that unlike now, contracts could still be renegotiated and the tax burden mitigated to some extent in April 2008, but at a cost to the country���s contractual reputation.

That, however, is no longer the case. The domestic market does not have the ability to pay the price for basmati rice based on the price exporters have paid to farmers. ���So, exporters have little option but to export. An export tax on top of that is simply unacceptable to buyers,��� All India Rice Exporters��� Association (AIREA) official said.

According to the official data, the country���s basmati exports have dipped to 7.15 lakh tonnes in the current fiscal till December 21, compared to 7.51 lakh tonnes in the same period last fiscal. Trade experts point out that after peaking in June 2008, world rice prices have been falling. They would have fallen more except that export restrictions by Thailand and Vietnam and the ban on non-basmati exports imposed by the Indian government. The moves kept international rice prices buoyed. In just three months, between September and November, international rice prices dropped by over 50% and worldwide demand plummeted.