Centre divided over basmati export floor price

Even as the Centre seems to be divided over raising the floor price on basmati shipments, the All-India Rice Exporters' Association (AIREA) has sought status quo on the issue.

"We need to de-link basmati from food security, since this is a premium rice variety not consumed by vulnerable sections of our society. Therefore, there should be no move to raise the minimum export price (MEP) at this point of time. Policy stability and continuity is important for products that are predominantly exported and where it takes years to build markets," said VK Arora, President of AIREA.

The Commerce Ministry had, on September 9, slashed the MEP on basmati shipments from USD 1,100 to USD 900 a tonne. Simultaneously, it also allowed for a foreign commission of 12.5 per cent for computation of the MEP.

In other words, even if a shipment is formally invoiced at USD 900 a tonne, the exporter can remit up to USD 112.5 in the form of discount/commission to the overseas buyer. Effectively then, the MEP works out to USD 787.5 a tonne.

But with the current year's kharif rice output officially estimated to have declined to 69.45 million tonnes (mt), from the 84.58 mt of kharif 2008, there is renewed pressure on the Centre to restrict exports. The Food Ministry apparently has sought restoring the MEP back to the earlier USD 1,100 a tonne level, while the Commerce Ministry is opposed to the move.

The Commerce Secretary, Rahul Khullar, was quoted by agencies as saying that "there is no case for hiking basmati MEP, as there is already a ban on exports of non-basmati rice and basmati is not consumed by the common man in India."

To be discussed today

The matter may come for discussion at the meeting of the Empowered Group of Ministers, scheduled for Thursday.

The country's basmati exports amounted to 1.520 mt in 2007-08 and 2.314 mt in 2008-09, at an average price of USD 976 and USD 1,366 a tonne, respectively.

During April-September, this year, exports of 1.816 mt have been registered with the APEDA at an average value of USD 1,294 a tonne. Of this, actual exports are estimated to have been around 1.4 mt, with total shipments for 2009-10 expected to touch 2.8 mt.

Those favouring a higher MEP point to the average price of USD 1,294 a tonne at which basmati exports have been contracted so far this year. Although the average contracted price has fallen from USD 1,547 in April to $1,185 a tonne in September, it is still higher than the existing MEP of USD 900, they say.

Moreover, Thai Jasmine rice is currently quoting at USD 1,059 a tonne. Allowing exports at USD 900, therefore, puts downgrades the status of basmati as a premium rice variety. Instead, it would actually encourage illegal export of non-basmati varieties, with unscrupulous traders shipping these along with regular basmati by taking advantage of a low MEP, it is argued.

Arora, however, dismissed these allegations, citing competition from Pakistan, which, by virtue of a weaker domestic currency, is exporting at prices of USD 600-800 a tonne.

Bumper paddy crop

Further, this time, the country has had a bumper basmati paddy crop of 6.5 mt, which is about 3.4 mt in head (full-grain) rice terms. "Restrictions on exports will eventually impact the farmers," he added.

Farmers, this year, have planted an estimated 1.492 million hectares (mh) under 'Pusa-1121', 'Pusa-Basmati-1' and 'Super' evolved basmati varieties. This is 25 per cent more than last year's coverage of 1.195 mh. At the same time, they have cut down the area under traditional basmati paddy, from 0.372 mh to 0.212 mh.

Taken from Business Line