India Cut in basmati MEP may impact prices at harvest time

The Centre has lowered the minimum export price (MEP) of basmati rice from $1,100 to $900 a tonne. The decision – notified by the Directorate General of Foreign Trade (DGFT) on Monday – comes even as the current standing crop is due for harvest in the next of months.

The new floor price is higher than the $800 a tonne that was recommended by the Empowered Group of Ministers headed by the Finance Minister, Mr Pranab Mukherjee, last month.

At the same time, the DGFT notification allows for a foreign commission of 12.5 per cent for computation of the MEP. What this means is that even if the shipment is formally invoiced at a price of $900 a tonne, an exporter can remit up to $112.5 in the form of discount/commission to the overseas buyers.

The effective MEP, then, works out $787.5 a tonne. This is way below the $1,400 a tonne free-on-board (f.o.b.) price that Indian exporters are currently quoting for 'Pusa-1121' variety. Traditional basmati varieties are currently being exported at between $1,300-1,400 a tonne for brown rice, with whites selling even higher at $1,700-1,800.

Even the Pusa Basmati-1 that is being exported to Europe is now fetching between $1,100 (brown) and $1,350 a tonne (white). "By allowing exports at $900 a tonne or Rs 41.40 a kg, the premium status accorded to basmati would stand undermined. The $900 MEP is at discount to even the Homi Mali Grade A Rice, which the Thai Rice Exporters' Association is now quoting at $994 a tonne. Implicitly, it means accepting basmati's inferiority vis-À-vis Thai Jasmine rice", a Delhi-based industry analyst pointed out.

According to him, it would have been a better idea to have fixed a uniform MEP covering all rice varieties, whether basmati or non-basmati. "If the Government feels that export of basmati does not present any food security threat, why not allow export of premium non-basmati varieties such as Sharbati and Swarna Masuri as well?", he quipped.

The analyst felt that the decision to slash the MEP now would impact basmati paddy prices at harvest time. A large area in Haryana, Punjab and western Uttar Pradesh has this time been sown under basmati, particularly Pusa-1121, which consumes less water. Although Pusa-1121 yields are somewhat lower than normal 'Parmal' varieties, farmers expect this to be more than offset through higher price realisations.