Rice exports to squeeze due to MSP, scanty rains

India, the world’s largest rice exporter, could see a decline in exports this year due to rise in minimum support price (MSP) of paddy and scanty rains in the current kharif season. Rice processing and exporters anticipate a drop from exports pegged at Rs 55,000 crore per year.
Rice exporters in India are expecting the slide in export of non-basmati to continue in the current year as they face trimming of margins after the latest hike in MSP by 3.7 percent for paddy announced by the federal government. Competitor countries including Thailand, Vietnam and Myanmar are likely to gain from India's current situation.

“Export of rice is sure to fall drastically as the government has not extended interest subvention on export of the commodity to compensate the rising cost of procurement,” BV Krishna Rao, president of the Rice Exporters Association, told ET. “The industry expected a booster for agricultural exports in the form of interest subvention in the union budget,”he said.

To supplement farm income, the National Democratic Alliance (NDA) increased paddy procurement price by 13 per cent in 2018 and the latest hike is for the current kharif season. “It will make rice exports from India dearer and squeeze margins to unmanageable levels for exporters,” Rao said.

Non-basmati rice export fell 15 per cent in the last financial year as procurement price spiked. The export stood at 4.8 million tonnes in 2018-19 compared to 6.3 million tonnes in 2017-18.

Rice processing and export industry is suspecting a steep fall in non-basmati exports in the current financial year. “Less rains will check yields and most of the output will go for government procurement. Private buying may remain subdued due to high procurement price,” a Chhattisgarh-based rice exporter said.

Rice exporters were given 5 per cent interest subvention under the Merchandise Exports from India Scheme (MEIS) as relief from higher domestic prices of the commodity earlier.

Despite an upswing in volumes and value of premium rice last year, exporters of basmati rice are also anxious. Exporters maintain that in the last season the loss of margins were compensated despite the increase in MSP due to the depreciation of the rupee against the US dollar. But the situation has turned unfavorable after the US hurdles in import of crude oil from Iran that is set to affect the rice trade.

Last season, Iran imported almost one-third of India’s total output.

“In the last year, rice industry had paid premium to farmers above the market price of paddy to discourage the use of pesticides and chemicals. The industry has also heavily invested in educating farmers on propagating best farming practices with little financial aid from Agricultural & Processed Food Products Export Development Authority (APEDA) or other financial institutions,” said Ashok Sethi, Punjab Rice Millers and Exporters Association. He lamented that the rice processing industry was up against serious hurdles in global market due to tough minimum residue levels of pesticides and chemicals.