In fact, to the delight of Indian growers, as the current season advances, both export and domestic demand for basmati rice
continues to improve, lending firmness to prices. Concerns about the likely damages that the second wave of Covid-19 might cause are leading West Asian countries to create buffer stocks of the cereal to see them through if it comes to the crunch. Farmers in Punjab and Haryana — the two states that have a share of nearly 80 per cent of production and exports — as well as in other growing centres are encouraged by the trade and rice millers to bring more land under the crop with the assurance that they will find eager buyers at good rates.
But this bright outlook has been slightly eclipsed by a payments crisis involving Iran, the country that accounts for 35 per cent of India’s basmati exports. In the weeks running through June this year Indian suppliers had to undergo the agony of having 250,000 tonnes of basmati rice worth around Rs 1,700 crore being stuck at Iranian ports for weeks. This was on account of that country’s central bank failing to make an allocation of requisite funds to local rice buyers to settle Indian exporters’ claims. As a consequence, exports were made to wait up to three months to recover payments from Iranian importers. Besides rice, Indian exporters of other commodities such as tea and sugar are also at the receiving end because of erratic Iranian payments resulting from the US banking sanctions against Iran.
The recurring payments problem has prompted the industry to seek New Delhi’s intervention for the creation of a “safe payments mechanism” for supplies of basmati rice to Iran, according to Vinod Kaul, executive director of All India Rice Exporters Association (AIREA). Exporters are also talking about the option of doing business with the West Asian country against advance payments or letters of credit to skirt the payments problem.
Meanwhile, Indian farmers who fancy growing the short-duration and less water consuming basmati rice are committing additional land to the crop. Trade officials expect nothing less than seven per cent extra land for growing basmati rice this season. A good monsoon and more area will result in a bumper crop. However, only when the harvest comes in will it be known whether the majority of farmers have used high-quality seeds and taken due care to ensure that they meet the maximum residue limit (MRL) for pesticides set by the more demanding buyers in the European Union (EU). Since the 28-nation EU made it mandatory that MRL for a fungicide called tricyclazole be reduced to 0.01 parts per million (PPM) from 1 PPM effective January 2018, India’s basmati sales to the region plunged nearly 40 per cent in 2018-19. Exports there have continued to fall since.
Expectedly, Pakistan sees in the discomfort of Indian exporters an “opportunity” to seize a major portion of the neighbour’s share, which was around 350,000 tonnes before the new MRL prescription, of the EU basmati market. The Rice Exporters Association of Pakistan claims that the basmati varieties grown in Pakistan do not require the use of fungicide. If this is its advantage over India, then it has the drawback of relatively high production cost resulting from poor research efforts and quality seeds supply issue.
In any case, Pakistani exporters are banking on the rigour that Indian producers will have to go through over two to three cycles to rid their basmati of tricyclazole, giving them enough time to boost their sale in the EU.
In the meantime, New Delhi has put in place a two-pronged strategy to recoup the market losses in the EU. First, in basmati-growing states, agricultural departments are sensitising farmers about judicious use of pesticides to grow the varieties that find favour with European consumers. Incidentally, India has 32 notified basmati varieties under the 1966 Seeds Act. Second, to impart discipline in export trade, the government has made it mandatory that ahead of shipments to the EU and other European countries, all consignments of basmati and non-basmati rice will have to secure “clearance certificate” from the Export Inspection Agency.
Some exporters are, however, seeing too much interference in the government oversight. They say the inspection is a time consuming process as it adds to their cost. But the government will not take risk with a commodity, the exports of which fetched the country $4.372 billion in 2019-20. Last year India also earned $2.025 billion from export sales of 5.036 mt of non-basmati rice.