Rice prices set to go up further on govt's food security plan

Domestic prices for both non-basmati and basmati rice, which have already firmed up by an average Rs 3-7 per kg on the retail front since the beginning of the procurement season, could futher go up marginally. That, despite the announcement of an additional Rs 50/qtl bonus for paddy by the government on Thursday and the removal of export price caps.

The central pool buys are already 1 million-odd tonne short compared to last year. In addition, the government has to ensure at least another million tonne of rice to account for the average annual increase in consumption. However, unlike wheat, global trade in rice is minimal and even a faint suggestion of an unexpected 1m tonne import could boost prices markedly. It is in view of this that the Centre appears to have gone in for beefing up food security with more, however high priced, wheat imports. It is now expected to bring in another 1 m tonne of wheat in addition to the 1.3 million tonne imported earlier this year.

According to rice traders and exporters, the growth in domestic prices has been driven as much by the apparent shortfall in supply compared to the consumption demand besides being fuelled by government policy. High export prices have also been a significant factor in boosting domestic price for rice.

The decision to first impose a blanket ban on exports of non-basmati rice and to amend that later only to impose a Minimum Export Prices (MEP) of $450 tonne already hiked up rice prices by close to $20 internationally,” points out an official of a rice export company. In addition to that, the price of higher value non-basmati rice such as Pusa 1121, some of which the government hoped to garner for the PDS this year through its ban and MEP, is at a premium (close to Rs 2,000/kg) compared to even to traditional basmati varieties).

Much of the higher export price is driven by imports from Iran, which is buying in huge quantities both for domestic use and for the Shiah festival tourist inflow and by imports from Saudi Arabia (it by and large buys a set blend of traditional and non-basmati) which is preparing for a huge influx for the Haj season.

The higher demand in the global market has meant that despite a marked higher price for rice imports (SA, for instance, tried to impose a domestic cap on rice price but failed to subsequently lure importers to bring in rice), demand for rice exports from India has not flagged. Not surprisingly, exporters have been using glaring loopholes in the MEP to beat rules and export good quantities of non-basmati rice despite apparent restrictions. “Exporters who ship out both basmati and non-basmati rice have been under-invoicing one and over invoicing the other in order to beat the MEP, making a mockery of it.

It made little sense to have a $450 per tonne cap for exports and expect it to improve buys for the Central Pool by 2-3 million tonnes,” trade sources asserted. Instead, observers maintain, it would have made more sense for the government to have directed that all exporters (including those that have so far been paying lower to farmers in regions where central procurement agencies don’t reach) pay the MSP to buy paddy from farmers. “That would have ensured level playing ground since paying the MSP is not mandatory for the private sector but it is for the government to intervene when prices fall, to ensure that this is in place.”

Government sources confirmed that higher value non-Basmati rice was finding its way in bulk to Delhi and Haryana mills from UP, where the government’s paddy buys for this period are substantially lower (3 lakh tonnes) than last year (11 lakh tonnes), for export. Interestingly, prices for higher value non-basmati rice including Sharbati and Pusa 1121 had come down noticeably in the domestic market soon after the rice export ban was imposed, primarily since this meant that exporters could not tap into the booming export market.

Source:The Economic Times