Pakistan falling back in global Basmati market progress
Banking channels with Iran help push Basmati trade
For the eight months ended fiscal year 2017, Pakistan’s total rice exports are down 11 percent year-on-year to $2.41 billion. It is necessary to mention here that rice is Pakistan’s second-largest export earner, after textile.
Non-Basmati exports are down 11 percent year-on-year in terms of volume, and 14 percent in dollar terms. The non-Basmati variety downfall has become a cause of concern. This decline is a relatively recent unnatural occurrence as Pakistan had been doing exceptionally well to capture markets for its cheaper non-Basmati varieties of rice in fiscal year 2016.
The once flourishing non-Basmati varieties are now suffering the same fate as their premium counterpart. The main reason for the decline has been a higher price; local stockiest/middlemen have been hoarding rice and shoring up the price.
Currently Pakistani rice is around $25-30 more expensive than Thailand or Vietnam. There has been a drop in the quality of this rice as well; where previously the non-Basmati rice was 35-40 percent broken, it is now around 50 percent broken.
Pakistan is trying to capture around 1.2 million tons of Iranian rice market, but lack of payment mechanism between the two countries is the major hurdle in meeting this objective.
Iran is one of the largest rice importers and purchases world rice output worth $2 billion every year. However, Pakistan’s rice accounts for nearly an eight percent of Iran’s market. Presently, trade with Iran is done on barter basis. One hope is that banking channels with Iran are finally opening up and Basmati is showing some signs of improvement.
For the month of February, Basmati exports inched up by 25 percent over last year. The source added that Basmati rice is now getting a better price and the reopening of Iran could bring much-needed reprieve for the industry.
Pakistan’s aromatic basmati rice exports fell almost 30 percent in the year to October due to cheaper rival supplies from India, a trend that is expected to continue and would make it difficult for the country to stay competitive.
India’s competitive rice prices have helped the country in snatching a bigger share of the global market and increasing exports. India’s lower export prices are taking toll on the Pakistan’s Basmati exports.
Pakistani exporters are selling rice on high prices in comparison of Indian counterparts because of their rising input cost. The price of Pakistani rice is higher than the paddy produced by India and other regional countries. The price of Pakistani basmati is higher by at least $100 to $150 compared to Indian basmati, and, hence, selling it is a big challenge.
Since 1997, no new basmati seed has been introduced in the market and that’s the reason for the low yield per acre, which has pushed rice prices higher. India, on the contrary, has introduced five new seed varieties in the last 10 years and that has helped it in increasing yield.
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.
World rice prices have taken a hit because of bumper crops in Thailand and Vietnam, which will make it difficult for a number of countries, including Pakistan to export some of its burdensome stocks.
Pakistan’s rice exports have been falling in recent years, mainly due to higher prices, energy crisis, poor quality seeds, low yield and persistently lower commodity prices in global markets.
The office of Global Analysis of USDA has raised Pakistan’s exports forecast by 0.1million tonnes to 4.5 million tonnes on a stronger pace of trade.
In the just-ended fiscal year of 2015-16, rice exports witnessed a decrease of 8.60 percent. The country earned $1.86 billion from these exports during the year compared to $2.04 billion earned in the fiscal year 2014-15.
Besides, 503,037 metric tonnes of basmati worth $455.25 million was exported as compared to 523,450 tonnes a year ago, valuing $601.27 million.
Looking into the reasons for decline in exports, the fact remains that high production cost of rice is hampering its sales in the international market. Exporters are finding it difficult to sell the commodity because of sluggish demand and comparatively higher price.
RICE PRODUCTION FORECAST
Rice production is forecast to increase to 17.5million metric tonnes, up 11 percent from 15.8 million tonnes in the just-ended fiscal year, assuming some recovery of off-season rice production.
While new-crop rice supplies are tight in 2016, larger supplies in 2017 will potentially boost Thai rice exports to 10 million tonnes. Meanwhile, supplies from new-crop in 2016 will likely limit Thai rice export potential at around 8 million tonnes.
RICE MARKET SHARE NEEDS TO BE INCREASED
The global basmati market size has phenomenally grown from 2 million metric tonnes (MMT) in 2005 to 4.7 MMT in 2016.
Pakistan’s share has declined from 42 percent to 11 percent during the same period in all the major basmati importing countries.
Rice contributes 9 percent to the national export proceed and 3.1 percent to the agriculture GDP of Pakistan.
During the last decade, the composition of rice exports has changed exceptionally.
Basmati’s share in rice exports has declined from 58 percent in 2007-08 to 24 percent in 2015-16.
In value terms, the basmati exports have declined from $1.1 billion to $447 million whereas that of non-basmati varieties has nearly doubled from $767millio to $1.4 billion.
Pakistan is being finished out of the premium quality rice segment and improving competitiveness in the coarse rice market characterized by a price race to the bottom.
The major reason for the downward slide in Pakistan’s basmati exports is the gradual erosion of competitiveness and the failure to adapt the product with the evolving international market dynamics.
The Basmati-385 variety has commercially has been depressed due to low yields and shorter grain length; Super Basmati has declined in natural varietal life-cycle.
Around 46 percent of the global basmati consumption, outside the subcontinent, is in Saudi Arabia and Iran only. In the Saudi market of $1.4 billion, Pakistan has gradually lost its share to India from 59 percent in 1986 to a negligible 6 percent in 2015 whereas in Iranian market of $1.2 billion Pakistan’s share is a dismal 0.4 percent now
The two recent Indian-developed varieties 1121 and 1509 have nearly taken over the increasingly parboiled-preferring global basmati market.
Both the varieties have average grain length (AGL) of 8.1-8.4mm and a per acre paddy yield of 2.0-2.4 tonnes compared with 7.0 to 7.4mm AGL and 1.2 to 1.7 tonnes yield of Super Basmati.
The superior aroma of Super Basmati becomes irrelevant for the parboiled/sela rice as the aromatic compounds evaporate in the parboiling process.
On the processing side, India has secured a technological advantage by developing mechanized parboiling technology which ensures color consistency and absence of odour which sets in through manual parboiling techniques.
The development of 1121 and 1509 varieties ideally complemented the parboiling technology.
The EU’s duty-free regime of brown basmati imports makes the EU a unique market for basmati but Pakistani basmati has been generally faring well here.
Pakistan is unwaveringly falling back in a progressing global basmati market due to loss of competitiveness ensuing from productivity crisis.
To recover the market share in premium rice segment necessitate immediate focus on agronomic research of high-yield, long-grain, drought-and-disease-resistant basmati varieties, re-introduction of mandatory pre-shipment inspection mechanism for improving quality perception of Pakistani basmati.