Basmati rice industry likely to register muted exports in FY20

Basmati rice exports are expected to be muted in 2019-20, following uncertainty over imports by Iran, tighter pesticide residue norms on exports to European Union and some import policy changes proposed by Saudi Arabia, according to a report. Basmati rice exports in FY19 were at an all-time high at Rs 32,806 crore, primarily led by aggressive buying by Iran, that enabled healthy growth in volumes besides favourable pricing, rating agency Icra said in a report.

Indian basmati exports are facing headwinds in the current fiscal, after two years of strong growth, Icra said, adding that the uncertainty over the level of exports to Iran as well as likely moderation in average export realisations, basmati rice exports are expected to be muted in FY20. "There is increased uncertainty over the level of imports by Iran going forward in light of ongoing trade sanctions and tighter pesticide residue norms continuing to weigh on exports to the European Union (EU). Also, some changes in import policies proposed by Saudi Arabia are likely to come into effect by the end of the year," Icra assistant vice president Deepak Jotwani said.

He said, while the EU is a comparatively smaller market, Iran and Saudi Arabia are leading destinations, accounting for 50-55 per cent of basmati rice exports from India. According to Icra, more long-term concern is that the reserves (receivables against crude oil exports to India done earlier) being utilised by Iran for paying for its basmati rice imports are declining with crude oil imports by India from Iran discontinued since June 2019.

This enhances the uncertainty on future trade with Iran, considering the ongoing trade sanctions, it added. While some comfort can be drawn from the fact that basmati rice forms a part of the staple diet of Iran and Saudi Arabia, however, any considerable decline in the level of imports by these countries can have a depressing impact on prices and exert pressure on the industry participants.

On the supply side, basmati paddy prices continued to the firm, however, given the better earnings garnered by farmers in the last season, production is estimated to be higher in the current fiscal. This coupled with the delay in the lower level of imports by Iran, if any, is likely to keep paddy prices under check-in the current year's procurement season.

This will have a bearing on prices in the next calendar year as well as overall basmati rice exports in FY21, Icra added..