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Export duty hike puts Indian basmati exporters in tight spot

Export duty hike puts Indian basmati exporters in tight spot
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First Published: Sun, May 18 2008. 11 58 PM IST
Updated: Sun, May 18 2008. 11 58 PM IST
Kochi: The Centre’s decision to hike the export duty on basmati rice to Rs8,000 a tonne and reduce the minimum export price by $200 (Rs8,528) to $1,000 per tonne has put rice exporters in a tight spot.
Several exporters say they are now finding it difficult to honour their contracts at the old prices, as the deals already had thin margins and the upward duty revision has put an additional burden on them.
Meanwhile, traders in Saudi Arabia, which imports 65% of India’s total rice exports of 1.2 million tonnes, have threatened to sue Indian exporters if they fail to execute the contracts. They are also learnt to have raised the issue with the Indian government.
Saudi Arabia, where rice is a staple food, imports around 625,000 tonnes of basmati. Of this, nearly 575,000 tonnes goes from India.
People close to the trade say exporters have still to execute about 400,000 tonnes worth of contracts and are unsure how to go about it as they have not factored in the increase in duty.
Vijay Sethia, president of the All India Rice Exporters Association, said several members of the association have received calls from Saudi importers asking them to execute the contracts at the old prices. While warning Indian exporters of lawsuits if they fail to do so, the Saudi importers have said they will also explore markets in Pakistan and Thailand for long grains.
“In fact, when the price of basmati started going up, the Saudi government, to protect the interests of its consumers and also not to reduce the supply of Indian basmati, announced a subsidy of $266 per tonne. While the consuming country is willing to subsidize its people, the government here is taxing its farmers and jeopardizing the export prospects,” Sethia said.
Several exporters have asked Saudi importers to bear the burden of additional duty or they would be unable to honour the contracts, he said.
“The very purpose of the Saudi government’s subsidy has been negated by our government,” said an exporter requesting anonymity. “Using the same logic, Saudi Arabia can raise the price of crude oil to India, which subsidizes petrol for its consumers.”
Priyanka Mittal, a member of the Basmati Rice Farmers and Exporters Development Forum, said Pakistan—India’s competitor in basmati exports—has already raised the minimum export price (MEP) to $1,500 per tonne to benefit its exporters. This is when Pakistani basmati has always been selling lower than the Indian one, she said.
Basmati is positioned as a premium product and the government’s decision to lower its MEP to $1,000 a tonne appears to reduce it to average rice. This is when Thailand’s long grain sells at $1,100.
The importer will now be forced to seek downward revision of the contracts concluded above $1,200 since the MEP will be treated as the government benchmark price, she said, adding that such moves would make India lose its market and nudge more than 800,000 basmati farmers into misery.
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First Published: Sun, May 18 2008. 11 58 PM IST