India rice market update

Despite the government's posturing, private trade is unlikely to import rice unless the rupee strengthens further, so that the Centre
decides to give rice traders an import subsidy. But state-owned agencies such as STC, MMTC and PEC will close their tenders for 30,000 tonne of rice import by this week, irrespective of how commercially unviable it is at current global prices.

The food ministry has already moved a proposal to the Empowered Group of Ministers (EGoM) for approval to import around two million tonne of rice in the mid-term, after denying any such move. The proposal is likely to be taken up for consideration on November 12.

The EGoM is also likely to issue a notification on hiking minimum export price (MEP) for Basmati rice to urgently prevent anything other than the premium qualities from going out of the country. The current MEP is fixed at $900/tonne, but in real terms, it works out to a much lower $788/tonne, allowing lesser quality rice to be exported noticeably in the name of Basmati.

At this MEP, even a non-Basmati rice variety such as Sona Masoori becomes competitive in world markets. Against that, a new notification could hike the Basmati export MEP to $1,000/tonne. On Wednesday last week, food minister Sharad Pawar insisted that there would be no imports on government account since the Centre had "sufficient stocks" to meet its welfare and PDS needs.

The onus was, therefore, on private traders, he said, to import at zero duty for meeting the short supply in the open market. India consumes about 90 million tonne of rice annually, but kharif rice output shortfall was assessed last week at 15 million tonne, the biggest drop in recent years.

At Rs 45.91 to a dollar exchange rate in mid-October, Thai rice sold at $545/tonne FOB, translating into landed cost in Indian ports to Rs 26,693/tonne. This is considered unviable politically. The landed cost for Vietnam 15% brokens works out to Rs 18,946.60/tonne (at $380/tonne) and 25% brokens works out to Rs 17,780.50/tonne (at $355/tonne).

The food ministry's argument is that Vietnam brokens are viable to import since wholesale price of rice per quintal (one-tenth of a tonne or Rs 19 and Rs 15/kg) is Rs 1,900 at Delhi and Rs 1,500 at Mumbai. But private sector importers will have to add internal transport, packaging, fumigation and other charges, making the actual price of imported rice commercially unviable.

Moreover, the price of premium varieties such as Basmati have plummeted, the price of non Basmati, average quality
rice is at a premium. Currently, exporters are only being offered $900/tonne for Pusa 1121 Basmati variety, which sold at $1,200-1,500/tonne last year to top drawer buyer Iran. To boot, Iran last week hiked tariff on Basmati imports to 45% from only 4% and is set to review this next month in a bid to protect the price of domestic rice varieties.