With rice production shortfall estimated anywhere between 15 million tonnes and 20 million tonnes this year, the Government may be tempted to clamp down on exports.
It should not do so. Knee-jerk reactions such as imposing either a blanket ban or a bludgeoning tax on basmati exports (as was done in 2008) would be self-defeating.
Instead, the Minimum Export Price (MEP) can be used as a tool of calibrating exports if the need arises.
As a rule of thumb, the Government may benchmark the MEP to the international price of Thai ‘Hom Mali Grade A’ (Jasmine) rice. Currently, this aromatic rice from Thailand is quoting at around $1,065 a tonne, free-on-board.
The MEP can be fixed at $100-200 a tonne over the Hom Mali price. The premium may be set at the higher level, if Hom Mali is selling at, say $750-800 a tonne; it could be lower at the prevailing quotes of $1,000-plus (which mean an MEP of $1,100 or so, against the present $900 a tonne).
Calibrating exports via the above mechanism will ensure that only high-value rice — in particular, the traditional varieties of basmati — goes out of the country.
Traditional basmati
The markets for traditional India basmati rice have been assiduously built over many decades and the premiums on these, unlike other varieties, have endured. On the other hand, manacling traditional basmati exports with taxes and other restrictions would tantamount to handing over our readymade markets to Pakistan – for free!
There is an additional, subtle point that policymakers need to bear in mind. Production of traditional basmati has reached a plateau for several years now due to natural and commercial limitations.
Market for Pusa-1121
Export of these varieties will have virtually no influence over domestic prices; nor do they compete with the agricultural resources of non-basmati rice that is commonly consumed. This is unlike cultivation of evolved basmati (including Pusa-1121), which is resulting in increasing diversion of land from non-basmati in critical rice-growing States of Punjab, Haryana and Uttar Pradesh.
The market for Pusa-1121 is growing at a blistering 50 per cent every year and much of it is going to Iran. The economics of Pusa-1121 is largely dictated by the prices that Iran is willing to pay for this variety.
Unlike the rest of West Asia, Iran has a rice-growing interest and its farmers have seen their realisations fall dramatically because of imports of Pusa-1121. At the same time, Iran needs over one mt of Pusa-1121 this season.
This inherent conflict within Iran will result in erratic flows with dramatic surges in volumes followed by long periods of inactivity. Price volatility and commercial disputes are, therefore, inevitable.
Source : Business Line