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Descending setback – Pakistan eager to increase rice export to Iran

Rice contributes 9 percent to the national export proceed and 3.1 percent to the agriculture GDP of Pakistan. Rice export is the country’s second largest foreign exchange earner commodity. During the last decade, the composition of rice exports has changed drastically. Basmati’s share in rice exports has declined from 58 percent in 2007-08 to 24 percent in 2015-16. During the first half of the fiscal year 2017 Pakistan rice exports declined by 18 percent. This is mainly due to stiff competition in the world market.

Pakistan exported rice worth $713 million in first half of fiscal year 2017 compared to $869 million in the corresponding period of last fiscal year 2016, depicting a decrease of $156 million. During the period under review, exports of basmati and non-basmati rice declined by 25 and 15 percent, respectively.

Pakistan’s basmati rice exports stood at $170.343 million during July-December of fiscal year 2017 compared to $229 million in the same period of last fiscal year.

Likewise exports of non-basmati rice declined by $98 million to $542.647 million in the first half of this fiscal year.

After touching $2 billion mark, the country’s second largest foreign exchange earner commodity, i.e., rice exports is on the decline for last two years and need the government attention to survive in the world market.

COMPETITIVE INDIAN MARKET

This year remained very challenging for rice trade due to lower prices and rising competition in the world market.

Despite lower commodity prices in the domestic market, exporters are unable to compete with India, which is offering the same variety at lower price compared to Pakistan. Presently, India is the major competitor in the international market and gradually capturing Pakistani share.

Pakistan’s non-basmati rice is being traded at about $390 per ton in the international market, while India is offering the same variety at $360 per ton.

Pakistan’s basmati rice is also costly by some $100 per ton in the international market as Pakistani basmati rice’s average price stands at $1,050 per ton compared to $950 per ton being offered by Indian traders.

Rice exports have not only been declined in terms of value but also decreased in terms of quantity.

Overall, some 1.697 million tons of rice (basmati and non-basmati) was exported during the first half of current fiscal year against 1.96 million tons in the same period of last fiscal year.

SHAKY IRAN MARKET

Iran is a major market for Pakistan, however, despite lifting of international sanctions, Pakistani exporters are still unable to initiate official export to the neighbouring country in the absence of banking channel.

Members of the Rice Exporters Association of Pakistan (REAP) have decided to open their offices in Tehran and Mashhad in a bid to increase exports to 600,000 to 700,000 tons to Iran.

Pakistan, which used to be the top rice exporter to Iran, has seen a significant decline in its share in the last two years because of the tightening of international sanctions on Tehran.

Iran annually imports more than $2 billion worth of rice. Pakistan’s share is negligible as it exported 2,234 tons in fiscal year 2015, fetching just $1.32 million.

Exporters of rice in Pakistan say that India has replaced Pakistan in Iranian rice markets because of better government-to-government arrangements for trade payments.

Indian traders have been signing contracts and sending rice shipments ahead of a ban on Indian basmati starting July 23 as Iran seeks to protect its local industry.

Iran had imported 40 lakh tons of basmati rice in fiscal year 2016 compared with 37 lakh tons in the previous year. The prospects for basmati rice in India have improved after almost two years.

But India is likely to lose out basmati rice exports to Pakistan after Iran fixed its import price at $850 per ton, which is not viable for Indian suppliers due to higher freight cost.

According to an Indian official, it would indirectly benefit Pakistan because of proximity to Iran as transportation cost was higher for India’s exporters.

Currency crisis in Iran hits India`s basmati rice exports. Uncertainty over use of currency for bilateral trade has impacted India’s basmati rice exports to Iran following hesitation over the use of the dollar after fresh sanctions levied by the United States on Iran.

US administration levied sanctions on 13 Iranian individuals and 12 entities for their support to that country`s administration in connection with the test of a non-nuclear ballistic missile last month. According to trade sources, the Iranian government is reluctant to use the dollar for bilateral trade with friendly countries, including India.

Since India has already cleared its oil dues in dollars, Iran lacks rupee-denominated currencies in its foreign currency reserves, casting a cloud uncertainty over India’s basmati rice exports to that country.

Trade sources believe that Iran is looking to replace the dollar with the euro. However, nothing has been finalized yet, and till a decision is taken.

India had a bilateral understanding with Iran for settlement of oil purchases in rupees. India cleared all dues arising from crude oil purchases in dollars. Hence, rupee reserves (in Iran) have been exhausted. Interestingly, Iran is reluctant to use the dollar for bilateral trade in response to US sanctions on it.

The Iranian administration has also not taken any final decision on the use of any alternative currency. Hence, there is uncertainty over India’s basmati rice exports to that country.

REAP has urged the government to take fiscal and diplomatic measures to create a conducive environment aimed at both reducing the cost of production and boosting exports.

The federal cabinet has approved resumption of banking channels between State Bank of Pakistan and Central Bank of Iran, which will boost Pakistan’s rice exports substantially.

There was a consistent effort for negotiating additional market access for Pakistani products in target markets.

FTA negotiations with Turkey and Thailand were at advanced stage, negotiations with Iran on FTA were also being initiated, and joint research study to assess the potential for a preferential arrangement with Korea was underway.

Pakistani traders eye an increase of at least 30 percent in export of aromatic Basmati rice to Iran.

Iran, one of the world’s biggest rice importers, annually imports more than $2 billion of the commodity. Pakistan has a modicum share in the neighboring market.Rice exports to rise to 20-30 percent to Iran. The efforts are underway from both the sides to resolve the issues.

Pakistan will break a long-standing monopoly of Indian aromatic rice in Iran. Pakistan is eager to regain lost share of basmati rice to India.

In the past few years, India has flooded the Iranian market with its basmati rice at knockdown prices.

Talks with Iran will also cover subjects such as opening of letter of credit in euro. Exporters are anxiously waiting for banks to accept letter of credits from Iranian buyers and the facility of discounting of bills drawn on Iranian buyers.

The State Bank of Pakistan has already advised Pakistani banks to take necessary measures for establishing correspondent banking relationship with Iranian banks.

At present, all the Pakistani banks are conducting their own analysis and due diligence on Iranian banks and are in touch with the SBP for the guidance.

Pakistan needs to develop competitive basmati for global market share. The main reason for the unending slide in Pakistan’s basmati exports is the gradual erosion of competitiveness.

During the last 20 years, India has seized the basmati market from Pakistan owing to its lead in the development of basmati varieties and improvement in processing technologies especially parboiling.

Pakistan is steadily regressing in a progressing global basmati market due to loss of competitiveness.

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