June 25 - July 1, 20

Rice will continue to remain one of Pakistan's major foreign exchange earners despite contracting buying orders from Iran and expected decline in production this year. The country is likely to clock in rice exports of four million tons in 2012 and the reasons are swiftness of Pakistani exporters to explore new markets following the western sanctions on Iran as well as a gap created in the international market on high price of Thai rice.

Pakistan is reported to have exported 200,000 tonnes of rice to China. It is expected to enjoy 19 per cent upswing in rice exports from last year's 3.2 million tonnes owing to market diversification. "When we got a setback from Iran, our exporters looked elsewhere and that has led to diversification," Reuters cited Javed Agha, chairman rice exporters association of Pakistan (Reap), as saying.

Pakistan's rice production may decline in the next fiscal year, according to an international report released recently. Though the decline would be marginal, it can affect the export outlook.

The International Grains Council (IGC) has estimated Pakistan rice production at 7.2 million tonnes in 2011/12 and 6.8 million tonnes for 2012/13 in its report. Rice exports are expected to increase three per cent to 3.7 million tonnes and exports figure for the 11 months of this fiscal year indicates its likelihood rather possibility of exports over and above that. Rice exporters succeeded in exporting approximately 3.5 million tonnes of Basmati and non-Basmati rice during July-May 2011/12, according to the data compiled by Reap earning the country nearly two billion dollars. Pakistan exports rice to 112 countries across the world.

Rice is Pakistan's third important crop after wheat and cotton. It is cultivated on over 10 per cent of the country's total cultivable lands. The country produces enough rice to meet both local and international needs at present. About half of total rice production is consumed locally. Since rice is a water-intensive crop, it is cultivated mostly on the irrigated lands. Water level determines the rice production volume. Therefore, irrigation system needs to be upgraded with the growing demand of water.

"Since the completion of the nation's irrigation system in the 1970s, demand for water has increased by more than 50 per cent while storage capacity has decreased by about one-third due to silting," said the IGC.

"This has left per capita water availability at a fraction of its earlier levels. As a result, chronic shortfalls in water available for irrigation are expected to impose an increasingly larger constraint on Pakistan's agricultural prospects," it observed.

India's aggressive comeback in the foreign market may have led to building pressures on existing rice exporting country. However, this has contained the price inflation to a large degree.

"Indian rice supplies will act as a price stabilisation factor against high global food inflation as the country is likely to emerge as the world's second largest rice exporter in 2012, selling around seven million tonnes," an expert told Reuters. It is also worthwhile here to recall a fear of United Nations food and agriculture organisation of growing food prices, which was driven by surge in food prices for three months through March.

It is now yet to be seen how south Asian nations manage to share the immense demand of rice in foreign markets. India and Pakistan have been important suppliers of rice to Iran, which meets nearly half of its annual rice consumption of 2.9 million tonnes through imports.

Sanctions can affect Pakistan's trade relationship with Iran. For the time being, Pakistan's traders are trying their best to benefit from the relaxations reflecting from exports of 127,000 tonnes basmati and brown rice worth $73 million and 2,039 tonnes non-basmati valued at $0.9 million to Iran during July-May, suggested Reap statistics.

Iran has an estimated population of 74 million people. Even if somehow, Pakistan is exempted from western sanctions on Iran, and allowed to make business transactions with it free from any pressure as was happened in case of India, the country may face issues related to payment of rice exports. India is among economies that are exempted from the ban on trade relation with Iran on the condition that they would cut their transactions with the Muslim country. Iran is literally running out of dollar as sanctions have squeezed the repatriation of crude oil payments, making it difficult for it to foot the bill of, for example, rice imports from India, which is the top supplier of rice to Iran meeting 70 per cent of its annual requirements. Iranian importers had failed to clear $144 million in payment outstanding on rice imports from India in the beginning of this year.

"Due to sanctions on Iran, currently banks are not involved in payments to Indian rice suppliers. The payments are direct and at times on credit, making Indian exporters vulnerable to defaults. Indian traders must avoid supplying on credit," a leading Indian rice exporter told Reuters. Ukraine exporters had the same tale to tell regarding grain.

If European Union (EU) has gone with its plan to ban Iranian crude imports, the country's financial hardship will further escalate. In addition, the upcoming US financial sanctions on Iran expected to be imposed from this week (June 28), compelling Iran trading partners to cut buying orders as much as possible, will encourage long and complicated payment channel of Dubai or Turkey in which intermediaries are involved in trade dealing of Iran with other countries. The bull-eye of western sanctions is obviously Iranian crude exports to reportedly give a lesson to Iran for its nuclear programme.

Contrary to the western argument, Iran calls its nuclear programme safe and secure entirely for civilian purpose. U.S. and its allies harbouring purported fear of nuclear disastrous fallout keeps building pressure on Iran to wind its nuclear programme up through making it a pariah state.

Pakistan was planning to strike a barter accord with its western neighbour, which is for the mutual benefits. Iran needs grains and Pakistan is in dire need of cost effective energy.