Credit Sales Hit Rice Exporters.

rice exporters and traders have been paying buyers abroad to purchase the best known aromatic rice variety in the world, the Basmati. The practice is threatening to dent the bottom lines of some big exporters now, making them jittery ahead of the new marketing season and forcing them to look anew at home markets.

Top basmati exporters to West Asia, mainly Iran, began selling on credit since 2006, the year in which the non-traditional Pusa 1121 variety was officially designated a Basmati variety.

In anticipation of a good price from exporters, farmers planted in plenty and, although the price was pegged slightly lower than traditional basmati rice varieties , Pusa 1121 sold like hot cakes in the new market of Iran. Traders and exporters started to compete and undercut each other subsequently to garner big import contracts, leading to bigger credit lines and higher credit percentages until such time as exporters found themselves lending importers virtually the entire purchase price. And trouble started.. Things started to come to a head in December last year when, under US pressure over Teheran's nuclear programme, the RBI said payments for Iranian crude could no longer be settled using the existing clearing mechanism.

According to Vijay Setia, president of the All-India Rice Exporters Association (AIREA ), direct payment to India from Iran (for rice) was becoming a major problem due to global sanction there. Making trade with Iran all the more difficult was the fact that several exporters had to work out of "nameplate" firms in Dubai instead of directly dealing with Teheran , thanks to the sanctions. Worsening matters, many oil majors and banks abandoned their dealings with Iran under pressure from the USA. "Currently, around Rs 2,000 crore is pending from Iran and Iraq for rice traders and exporters. However, Iran has been our best buyer of Pusa 1121 despite intermittent problems . Some months ago, the Iranian government withdrew the subsidy to rice importers, increasing pressure on us to keep in healthy business . But the sanctions have made banks extremely jittery.

The Bandar Abbas (port) route used by some exporters to push through their produce is risky and is not even recognised by banks," one industry official said. According to one AIREA official, exporters first extended a 20% advance for cargoes of Pusa 1121 contracted to push their produce. The strategy worked in hooking big buyers in Iran. leading to worries for classic basmati variety exporters such as New Delhi based Tilda Riceland who frowned on dilution of the definition of "basmati" by the government . But competition sharpened with the entry of newer but more aggressive millers-turned-exporters from the Moga-Jalalabad regions .

The stakes became higher and higher by 2009 even as prices for the Pusa 1121 variety shot up to above that of traditional varieties, Worries increased for exporters of Pusa 1121 variety who had themselves , overtime, boosted the percentage of advance cargoes and then the credit line from 60 days to 90 days and higher. "It's the classic case of the camel and the Arab. After a point, importers starting asking for bigger concessions. Basmati exporting firms had little option but to virtually financing importers fully,",: one exporter acknowledged . Iran and Saudi Arabia source around $1.5 billion worth of basmati rice a year.

Iran accounts for half of that figure of $750 million annually and accounts for almost 35% of the total exports. It bought around 2.2 mt of basmati, most of it the 1121 variety, wroth Rs 12000 crore two years ago. India's annual basmati exports fetch it close to about $2-3 billion yearly. Basmati rice output was higher at 5 mt compared to 4.5mt the previous fiscal.

Source : economictimes.indiatimes.com