Basmati paddy prices have firmed up considerably in the last couple of weeks and exporters blame “pure speculators”, riding on the back of “easily available bank finance”.
Currently, prices of Pusa-1121 paddy in major northern mandis are ruling at Rs 2,300-2,400 a quintal, against Rs 1,700-1,800 a month ago. Auction rates of traditional HBC-19 variety have similarly shot up from Rs 2,600-2,700 to Rs 3,500, while climbing from Rs 1,500 to Rs 2,000 a quintal for Pusa Basmati-1.
Groping in the dark
Most of this increase has happened after mid-November. “We are simply not able to understand why this is taking place, despite a bumper crop this time and also a virtual drying up of export orders,” an exporter said.
The current basmati paddy prices have very little correspondence to realisations from export of rice. At Rs 2,400 a quintal and 10 per cent mandi expenses (including transport), the Pusa-1121 paddy would cost around Rs 2,640 at the mill-gate. For every quintal of paddy, millers get 54-55 kg of “head” (full grain) rice and 10-11 kg of brokens.
If one were to deduct Rs 120 from the sale of 10 kg brokens (@ Rs 12), the ex-mill cost of the paddy in head rice terms will be Rs 45.81 a kg. If expenses on milling and other overheads (Rs 1.50), packaging material (Rs 2), transport to Kandla (Rs 2), port handling and freight to Dubai (Rs 1) are added, the Pusa-1121 head rice that is exported would cost Rs 52-53 a kg or $1,150-1,200 a tonne.
“Contrast this to recent export contracts, which have been struck at $900-950 a tonne (c&f Dubai), with a handful at $ 1,050. If I were to buy paddy at today's rates, these realisations will not even cover basic costs, let alone interest and warehousing expenses,” the exporter said.
Moreover, since September, exporters have contracted hardly 2 to 2.5 lakh tonnes (lt) of rice from the new crop, against the 18 lt that was physically shipped out during January-August. The 2-2.5 lt include 0.75-1 lt to Iran, 60,000-70,000 tonnes to Saudi Arabia and 50,000-60,000 tonnes to European Union.
“The recent boom in exports was mainly driven by Iran, which bought 8-9 lt of last year's Pusa-1121 crop. This year, not only is their domestic production higher, but they are also sourcing 2.5-3 lt of the same varieties now being grown in Pakistan. The troubles in Dubai, which is the centre for bulk of the export documentation and trade finance to Iran, will only worsen matters”, the exporter said.
AMPLE LIQUIDITY
He alleged that the current hardening of paddy prices is largely a result of ample liquidity and financing from banks. “There are some big commodity houses that have built up speculative positions on basmati, expecting a repeat of last year's bull run. Banks should ensure they fund only against firm export orders,” he added.
Others in the trade, however, blame the exporters themselves for the current predicament. “They took the bumper crop for granted and did not show any urgency to buy. Now, they are having to suddenly enter the market, thereby pushing up prices, which ultimately has benefited farmers,” they pointed out.
Farmers this year are estimated to have planted nearly 15 lakh hectares (lh) under improved basmati varieties such as Pusa-1121, Pusa Basmati-1 and Super, against 12 lh in 2008. In the case of traditional basmatis, the area has shrunk somewhat, from 3.7 lh to 2.1 lh. At the same time, average yields have been at least five quintals a hectare more than last year, translating into a record harvest.
Source : Business Line