Uncertainty over use of currency for bilateral trade has impacted India’s basmati rice exports to Iran following hesitation over the use of the dollar after fresh sanctions levied by the United States on the Islamic country.
US president Donald Trump levied sanctions on 13 Iranian individuals and 12 entities for their support to that country's administration in connection with the test of a non-nuclear ballistic missile last month. According to trade sources, the Iranian government is reluctant to use the dollar for bilateral trade with friendly countries, including India. Since India has already cleared its oil dues in dollars, Iran lacks rupee-denominated currencies in its foreign currency reserves, casting a cloud uncertainty over India’s basmati rice exports to that country.
Trade sources believe that Iran is looking to replace the dollar with the euro. However, nothing has been finalised yet, and till a decision is taken, India’s basmati exports to Iran may not resume. Shipment for old contracts, however, will continue.
“India had a bilateral understanding with Iran for settlement of oil purchases in rupees. In fact, India cleared all dues arising from crude oil purchases in dollars. Hence, rupee reserves (in Iran) have been exhausted. Interestingly, Iran is reluctant to use the dollar for bilateral trade in response to US sanctions on it. The Iranian administration has also not taken any final decision on the use of any alternative currency. Hence, there is uncertainty over India’s basmati rice exports to that country. Until, the dilemma over the use of currency recedes, India’s basmati rice exports to Iran are unlikely to resume,” said Gurnam Arora, Joint Managing Director, Kohinoor Foods Ltd, producer and exporter of Kohinoor brand basmati rice.
Meanwhile, a group of over six to eight importers in Iran has set $850 a tonne as the maximum import price of Indian basmati, which exporters based here find unviable due to a sharp increase in the prices over the past four months. They seek a minimum $925–950 a tonne.
A senior Apeda (Agricultural and Processed Food Products Export Development Authority) official said the Iranian government hasn't set any price for Indian basmati.
“The currency issue can be dealt with bilaterally (between buyers and sellers) through use of alternative denominations like euro, yen and rupee. So, our request to exporters is not to sell basmati rice at a loss. They should wait till a clear price signal is received from the market,” a senior industry official said.
Meanwhile, the price of the benchmark basmati rice in the wholesale market near New Delhi jumped by 50 per cent to trade at Rs 72 a kg currently from Rs 48 a kg on October 1, 2016. Indian exporters, therefore, seek a similar increase in realisation from basmati exports to Iran. In the last two tenders, the average realisation works out to $650-700 a tonne.
“Iran’s move to put a cap is a result of a cartel of importers there. However, Iran has also reduced duty on basmati rice to 26 per cent from 40 per cent to ensure that its countrymen get rice at lower cost. Pakistan will derive some advantage from this as their logistic cost is lower due to proximity with Iran,” said Rajiv Tevtiya, Managing Director, RML AgTech, a Mumbai-based agri-technology and advisory firm.
Meanwhile, data compiled by Apeda showed India’s basmati rice exports at 2.9 million tonnes between April–December 2016, 0.1 million tonnes lower than the same period the previous year. Exports, however, are likely to pick up and touch last financial year’s level of 4 million tonnes by March 2017, said an Apeda official.
Of about one million tonnes of annual imports, Iran has purchased nearly 0.5 million tonnes from India between April–December 2016.