Gurnam Arora, JT MD, Kohinoor Foods,speaks to CNBC-TV18 about the impact on the export of Basmati rice in the US due to residual pesticides being found in the samples. The US authorities have issued an import alert and a detailed scrutiny of every grain is taking place
We hope that the prices of basmati will come down and we will be much more competitive in the international market.
Indian rice firms are now under the radar of US Food and Drug Authority (USFDA) after pesticide residual was found in basmati rice samples. India's exports to the US have also taken a plunge due to this.
Speaking to CNBC-TV18, Gurnam Arora, joint managing director of Kohinoor Foods said that the problem was that the US authorities did not have their own residue limits mentioned on the chemicals that were used by the Indian rice makers. That mismatch was creating the problem, he felt.
But, the problem will be resolved soon with the help of the Indian government, he said.
On the impact of the alert on the industry's returns, he said that the US only took 125,000-130,000 tonnes of our basmati export from a total exports is more than 3.4-3.5 million tonnes annually. But, the rice was popular among Americans and was being sold in giant retail outlets like Wal-mart; which is a worry for us now, he said.
With the good monsoon, he expects the prices of basmati to come down domestically too.
Below is the edited transcript of his interview with CNBC-TV18
Q: US Food and Drugs Administration (USFDA) have found pesticide residual in basmati rice. If you could confirm if any of the Indian samples too have found this and is there an advisory that the USFDA has issued?
A: This problem has come up in the last couple of months because the US Government feels that the pesticides being used in basmati rice as not as per their standards.
We have already petitioned to the government because we feel that it is a non-tariff barrier and Government of USA is not even fulfilling their commitment. Their United States Trade Representative (USTR) which set the systems for Sanitary and Phytosanitary (SPS), United States Department of Agriculture (USDA) is not even applying that to their own system.
That is the problem. Basmati is going all over the world. We are using the same basmati ourselves, and there has not been any problem. But since they do not have set systems, they don’t have their own Maximum Residue Limits (MRL) in any of the chemicals. That is creating the problem.
Q: What percentage of Indian exports goes to the United States? How much of your exports go to the United States and therefore what is the impact on FY14 numbers as of now?
A: The numbers are not very big numbers as US only takes about 125,000-130,000 tonne per year where our basmati export is more than 3.4-3.5 million tonne.
So it is not a very big chunk of basmati exports, but it is one market where basmati is very popular. Not only the ethnic community, but even the Americans are enjoying basmati. It is selling in the top stores of Wal-Mart and Costco and other places, so that is a worry to us.
The Indian Government is also following up with the US Government and I hope things should be sorted out very soon.
Q: How competitive are Indian exports now? We had record production from Vietnam. Could you compare the situation in terms of exports and domestic, the pricing trend?
A: When you are talking about Vietnam, then you are talking about long grain, non-basmati. Right now Vietnam is cheaper than anywhere in the world; that is why right now the export of long grain is slightly disturbed.
We are still not doing badly. As far as our basmati is concerned, only Pakistan is our competitor and their price and our price is now matching, so there is no problem.
Monsoon for the new crop is looking very good. We hope that the prices of basmati will come down and we will be much more competitive in the international market. Things look very interesting for the coming year.
Kohinoor Foods stock price
On July 31, 2014, Kohinoor Foods closed at Rs 48.05, up Rs 0.55, or 1.16 percent. The 52-week high of the share was Rs 59.90 and the 52-week low was Rs 29.30.
The company's trailing 12-month (TTM) EPS was at Rs 1.85 per share as per the quarter ended March 2014. The stock's price-to-earnings (P/E) ratio was 25.97. The latest book value of the company is Rs 107.64 per share. At current value, the price-to-book value of the company is 0.45.
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