Rice firms fail to pay growers on fall in exports

Hit by a lack of export orders, the basmati rice industry has not been able to pay paddy growers, and have arrears to the tune of Rs 5,000 crore. These basmati processors get loans from banks against export orders and they use the money to pay paddy growers. Domestic rice processors are estimated to have purchased paddy worth Rs 7,000 crore from farmers, an industry source said.

“There have been negligible number of contracts during the last two months and the cash flow has been affected. The international buyers are reluctant to buy basmati at a price that includes export duty. A number of export orders from Europe, which would have otherwise come to India, have gone to Pakistan. Buyers from Saudi Arabia are waiting for the scrapping of tax. If the tax is not scrapped, they will also buy from Pakistan,” said Gurnam Arora, joint managing director, Kohinoor Foods.

The demand for basmati has taken a hit after the financial crisis and prices have fallen sharply. The export tax of Rs 8,000 a tonne on basmati export has made Indian basmati less competitive vis-a-vis Pakistani rice. Pakistani basmati is cheaper by $400-500 to the Indian price of $1,300-1,400 a tonne.

The government had imposed a minimum export price (MEP) of $1,200 a tonne on basmati rice from April 1 last year. This was followed by the export tax of Rs 8,000 a tonne, imposed on May 10. These were a part of the government’s inflation control measures.

Saudi Arabia, UAE, Kuwait, the UK and the US are the major markets for Indian basmati.

“Imposing an export tax in May was logical since global prices were at a peak. However, since then global prices have dropped by 50 per cent. Believing the government would scrap the tax as prices fell and physical demand will be at last year’s levels, Indian processors bid aggressively for paddy and paid high prices to farmers in Haryana and Punjab compared to Pakistani counterparts,” said R S Seshadri, director, Tilda Riceland.

Traditional buyers from West Asia and Europe have contracted no more than 10 per cent of the orders of what they usually contract by this time, Seshadri added.