Red Sea crisis: Indian buffalo meat, basmati rice exports to some African nations hit, but loss not too large

The Red Sea strait is crucial for 30 percent of global container traffic and 12 percent of global trade.

The ongoing Red Sea crisis is heavily impacting Indian buffalo meat and Basmati rice exports to African countries like Tunisia and Algeria given the lack of a feasible alternative route for these outbound shipments, a senior Indian government official said. However, the loss on account of this development is not too large and is only a “couple of millions,” the official added.

India’s meat, dairy and poultry product exports to Africa fell nearly 12 percent in December 2023 compared to November, but, outbound shipments of rice to the continent has seen a sequential jump of over 56 percent during the same period. To be sure, there is no separate data available for the long-grain variant for the period.

The cost involved in fulfilling the orders for such items are higher as well, since they are low-value and high-volume in nature.

According to Israr Ahmed, President (Officiate) Federation of Indian Export Organisations, when the value of goods is high and logistics cost is a very small portion of the overall value of the container, the impact is low.

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“However, when it comes to agricultural items like Basmati rice, coir, cereals, etc., with high cargo volume but lower value goods, the impact is very high. Low-value goods are impacted because the container costs could be 30-40 percent of the whole consignment,” Ahmed told Moneycontrol.

Global Trade Research Initiative’s (GTRI) Co-Founder Ajay Srivastava agrees. “While high value, low volume products like pharmaceuticals, gold jewellery and cut and polished diamonds can be flown via air with some impact on profits; many low value high volume products such as chemicals, petro-chemicals, plastics, apparel may become uncompetitive and may lose on fresh orders,” he said.

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Overall Exports

The government official cited above said the impact on overall exports is so far limited given that exporters have found alternative routes.

“Exports to some of the North African countries will be affected. But for Arabic countries like Saudi Arabia there are other routes. Indian exports to US, UK may be impacted to an extent, but indications are that shipping volumes to those routes have not been affected much,” this official added.

The Red Sea strait is crucial for 30 percent of global container traffic and 12 percent of global trade.

Since the outbreak of the Israel-Hamas war in October, the Red Sea has been in the news for periodic attacks on commercial vessels by Houthi rebels of Yemen, raising concerns about its impact on global maritime commerce.

India uses the Red Sea route through the Suez Canal to trade with Europe, North America, North Africa and parts of Middle East. According to Crisil Ratings, these regions accounted for around 50 percent of the South Asian nation's exports worth Rs 18 lakh crore and about 30 percent of imports amounting to Rs 17 lakh crore last fiscal.

Given that when it comes to agricultural commodities like Basmati rice, about 30-35 percent of production is shipped to these regions, exporters are feeling the pressure as rising freight costs curbed outbound shipments and a part of their inventory is now being sold in the domestic market, leading to a moderation in realisations, Crisil said in a note on January 25.

“In terms of impact on overall merchandise exports for January, we see a small single-digit percentage decrease in outbound shipments. This is because shipments got delayed and some consignments were not able to ship out due to the cancellation of sailings via the Red Sea,” FIEO’s Ahmed said.

India’s Ministry of Commerce is scheduled to release the trade figure for January this week.

Goods exports in December 2023 entered positive territory, registering a growth of 0.96 percent compared to the same month the previous year, following a contraction in the preceding months, whereas merchandise imports fell 4.9 percent on-year.