Saturday, November 25

Basmati exports: goodbye depreciation fever?

The trade report card for May 2021 has left almost everyone shocked. Unexpectedly, rice exports have fallen by half to almost a hundred thousand dollars in this month. It had been previously assumed that rice exports would have reached new heights due to the global commodity price boom. However, the report states that the exports are at their second-lowest value in the past 32 months, dipping even lower than the values estimated last May (peak pandemic period).

Even though trade performance in shorter periods can never truly justify long-term trends, these developments have been a long time coming. Rice exports have been previously celebrated as the leading savior (after textiles) of Pakistan’s export performance. Pakistan’s rice exports have rebounded substantially after the currency depreciation of 2018-2019, yet the recovery in export volumes was always bound to slow down, and here’s why.

Since rice is a commoditized goods export, Pakistan’s rice processors have also benefited from the competitiveness in prices after the currency depreciation. Even though the volume of the total rice exports sat stagnant at 4 million tons per annum, the quality of exports was improved. The export mix started to shift back towards high-value basmati rice instead of the coarse variety that makes up the majority of the total exports.

However, two years later, the recovery witnessed is now coming to a stop. A closer look at granular data led to two possible causes for this. Firstly, the global basmati rice exports (excluding the subcontinent) are valued at roughly 5 million tons per annum, mostly consisting of Iran, Gulf, and desi diaspora in North America and European continents. Historically, exporters based out of India have had a commanding export market share, averaging over 80 percent.

In India, basmati is not considered a staple rice variety. This is why India produces a much larger exportable quantity of basmati. The country thus has already established internationally recognized brands. Basmati exports make up around 60% of the country’s total earnings from rice exports, which is around double the amount this export makes for Pakistan. Moreover, Indian exporters also enjoy better price competitiveness (although Indian-origin basmati has witnessed bans by the EU due to high tricyclazole levels in recent years).

Due to these reasons, Pakistan’s basmati exports face a natural ceiling that exists in the form of a strong competitor and a lack of export destinations. However, there may be another factor that is limiting Pakistan’s export potential. 80 percent of the local basmati produce is used for consumption– and this number is only going to increase.

Basmati has been popular with national dishes like biryani and pulao, but this popularity is increasing and the driving forces are various exogenous variables. For one, growth in production of Pakistan’s staple cereal crop – wheat – has remained stunted, and has failed to keep up with the rising domestic population. Two, although globally rice is considered an inferior grain to wheat, that’s not the case for basmati, which is considered premium due to its aromatic qualities. Three, although basmati may be more expensive,

low-mechanization means that the harvested crop is often of poor quality and has a high share of rice in broken form, that sells at lower price points in the domestic market, but has little foreign demand. And finally, while the per-unit price of rice may be higher than that of wheat flour, one kilogram of cooked rice feeds as many as 10 – 15 people, much higher than the number of flatbreads that may be prepared by a kilogram of flour.

Basmati is becoming the main, affordable cereal in Pakistan. Yet, coarse rice varieties keep the facade of high exports alive. The question is: why don’t coarse varieties substitute basmati locally?

There are two reasons for this.

One: coarse varieties are grown using imported varieties that are foreign to local consumption and taste. Three-fourths of domestic coarse rice production takes place in the saline backwaters of Sindh, where basmati cannot be grown. Instead, hybrid rice is deeply popular in the southern province due to its high-yielding varieties that have earned better profits to farmers over the last two decades due to demand by exporters. Moreover, as domestic demand for basmati is increasing, the land fit for growing it is decreasing.

In conclusion, what this means for basmati exports is that even though there is a lot of potential in it, the yield will never reach its maximum capacity because domestic demand will keep pulling it down.

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