Basmati export price may rise due to Red Sea unrest

The Centre is also likely to consider alternative routes along Africa for shipments of basmati rice if attacks by the Houthi group persist. (Photo: Mint)
The Centre is also likely to consider alternative routes along Africa for shipments of basmati rice if attacks by the Houthi group persist. (Photo: Mint)

Summary

  • However, demand is not expected to be affected unless the unrest persists for extended period

NEW DELHI : Basmati rice export prices are likely to rise by about 20% due to rising logistics costs caused by trade route disruptions in the Red Sea region, two people with direct knowledge of the matter said.

However, Basmati demand is not expected to be affected unless the unrest persists for an extended period, leading to a further price rise, they said.

Logistics firms were forced to suspend operations, and opt for longer routes to reach destinations in Europe and Middle East, after Yemen’s Houthi group launched attacks using drones and missiles on commercial ships at the southern end of the Red Sea. The Middle East is one of the largest export markets for Basmati rice.

“Demand for Basmati rice, especially in the Middle East, is unlikely to be impacted with a 20% price rise. However, if the disruptions in the Red Sea persist, prices could be hiked further," one of the people, a government official, said.

Trade expert Biswajit Dhar agreed: “As the blockade continues, commodity prices are surely going to increase since ships are being re-routed via a longer route. The global economy, which is already on the edge due to the impact of the two conflict zones, could get further disrupted as a result." Dhar, is a professor at the Centre for Economic Studies and Planning, Jawaharlal Nehru University.

The Centre is also likely to consider alternative routes along Africa for shipments of basmati rice if attacks by the Houthi group persists, the second person said. And, this longer route could affect exports to Europe, he added.

Raising a concerns over the fate of trade, former president of Rice Exporters Association, Vijay Setia, said: “Due to the ongoing disturbances, freight for Middle East surged from $600 for one container to $2,000, while freight for Europe consignment increased to $6,000 per container from existing $2,000 as ships are getting re-routed and taking a longer route. Buyers get scared and they start negotiations affecting the Indian traders."

Setia said that farmers are not going to suffer from it as a majority of them have sold their produce. Emailed queries to a commerce ministry spokesperson on Saturday didn’t elicit any response till press time.

The disruptions in shipping operations in Red Sea region, a major trade route for various commodities, has led to a rise in logistic costs for commodities transported through these routes, including rice, wheat, oil and manufactured goods.

“India has a commitment to export 500,000 metric tonnes of new season basmati rice to Europe and the Middle East. Contracts have already been signed. The emerging situation will reduce the earnings of the country as there is going to be a significant rise in logistics costs," said Rajesh Sharma, an agriculture commodity expert.

After a ban on non-basmati white rice exports in June to stabilize domestic prices, India set a floor price, or minimum export price (MEP) of $1200 a tonne for overseas sales of basmati in August. It was reduced to $950 per tonne in October. India is a leading exporter of Basmati rice, with over 4 million tonnes annual shipments.

According to commerce ministry’s data, rice export witnessed a significant decline from $6.98 billion a year ago to $6.45 billion in April-November 2023, down 8%. In November, trade deficit widened to a record high to 27% over a year ago.

Basmati is produced in Jammu and Kashmir, Himachal Pradesh, Punjab, Haryana, Delhi, Uttarakhand and western Uttar Pradesh. Currently 34 varieties of Basmati rice have been notified under the seeds Act, 1966. Some key varieties include, Dehraduni basmati, Punjab basmati, Pusa basmati, and Haryana basmati.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
more

MINT SPECIALS