Non-basmati rice exports: In search of new direction

• Blessed with sub-tropical agro-climatic conditions and fertile alluvial soil, India is known to be one of the top producers & exporters of rice in the world.
• Exports of non-basmati rice have declined drastically by around 55% YoY during April-May, 2018, after a decline by 15.6% YoY in FY 2018-19.
• This decline is attributed to government policy of hiking MSP and removing tax incentive for exporters, coupled with intense competition from competing nations.
• The government should consider alternate measures of support for exporters and also help them diversify to more lucrative markets.

With estimated 115.63 MT of rice production in 2018-19 according to the Ministry of Agriculture and Farmers Welfare, India enjoys the position of being world’s second largest rice producer. According to APEDA, India exported 75,99,552.15 MT of non-basmati rice in in 2018-19. The findings suggest that the top importers of India’s non-basmati rice were Nepal (9%), Benin (9%), Bangladesh (7%), Senegal (7%) and Guinea (6%).

While India’s overall exports of non-basmati rice stood at 1.53 MT during April-May 2018, the figures recorded for this year amounted to 711,837 tonnes. In values terms, India’s overall non-basmati rice exports slumped to US$ 294 million in April-May FY 2019-2020 as against US$ 652 million in the corresponding period of the previous year. This follows a decline in exports by 15.6% YoY to reach US$ 3 billion in FY 2018-19. It is feared that exports could hit a seven-year low in 2019-20.

Farmers vs exporters

One major domestic factor that has resulted in this worrying development is the government policy of hiking minimum support price (MSP) over the last few years to enhance incomes of the Indian farmers. This drove up the cost of rice procurement and hence its selling price by around US$ 25 in the international market. For instance, Chhattisgarh, a leading rice producer, increased the minimum paddy buying price to Rs 2,500 per 100 kg in 2018 from Rs 1,750, a jump by 43% YoY. This cost is ultimately borne by the consumers, rendering it uncompetitive in comparison to India’s rivals like Thailand, Vietnam and Myanmar. The government also decided to to withdraw 5% MEIS tax incentive from April 1, 2019, despite industry demand to extend it till next year, on expiry of the current Foreign Trade Policy.

At the same time, there are some external factors that have deterred India’s exports. Weak demand on account of the piling up of inventories in African countries has cut one major source of income for India’s non-basmati rice exporters. Bangladesh, which imported 1.87 million tonnes of non-basmati rice from India in 2017-18, has imported just 480,567 tonnes in 2018-19. This is because of the bumper rice production (35.3 million tonnes) in Bangladesh according to US Department of Agriculture (USDA).

Source: APEDA, figures in US$ million; top markets are as per data for 2017

Stiff competition from Vietnam, Myanmar, Thailand & China has also proved detrimental to the interests of Indian rice exporters. Due higher paddy/unhusked rice prices, India could not reduce prices of parboiled rice and is trying to fight harsh competition from Thailand. Moreover, according to the industry insiders, the shipments of white rice have almost ceased since Vietnam & Myanmar are offering more than US$ 30 per tonne discount over Indian costs of non-basmati rice. The aggressive liquidation of old stocks (3-4 million tonnes) by China has also dealt a severe blow to the rice industry in India. Furthermore, China is eyeing African markets, especially Egypt to dump its rice.

Given the situation in markets like Bangladesh and African countries, diversification is a must. India needs to look at its weak presence in some of the top importers of non-basmati rice like Saudi Arabia, UAE and China. Exports to Saudi Arabia and UAE have declined alarmingly over the years, while exports to China haven’t really picked up. Indian exporters face higher tariffs than Pakistan in the case of China, and similarly higher duty barriers in other ASEAN countries like Malaysia, Philippines, South Korea and Japan. This is an issue to be addressed in RCEP negotiations.

The government may consider other ways to enhance incomes of farmers such as the development of food processing industry, direct cash transfer and encouraging pisciculture & livestock farming, in lieu of hiking the MSP of crops. The industry is also of the opinion that the Indian government must provide suitable tax rebates to exporters after the removal of MEIS, while ensuring compliance with WTO norms. This will help stem the decline in exports and also ensure that farmers get a good price for their produce.