Basmati rice industry likely to rebound in H2 FY17, FY18: ICRA

Lower production volume and stable global demand is expected to push up realisations of basmati rice in FY2017 and FY2018, despite short-term impact of demonetisation, a report said.
Basmati rice industry is expecting a rebound in H2 FY2017 and FY2018 with demand driven improvement in realisation and low inventory prices, ICRA said in its report here.
"Basmati rice has witnessed growing demand in domestic market for last few years. The export demand, which has remained subdued for last two years, is expected to witness a pickup in the coming months when a majority of export orders are received. This is expected to push up the realisations in H2 FY2017 and FY2018," ICRA Assistant Vice President Deepak Jotwani said.

Most of the large exporters, who are holding relatively lower priced inventory, are expected to benefit from this. While paddy prices have inched up in the current procurement season, this would be comfortably covered by growth in realisations, Jotwani said.
In the past two years, the basmati rice industry has been under financial stress on account of excess paddy supply and weak international demand, leading to a sharp decline in realisations. The average export realisations declined from Rs 77,988/MT in FY2014 to Rs 56,149/MT in FY2016.
However, there has been some improvement in demand in Q1 FY2017 also reflected by the increase in export realisations to Rs 59,247/MT. For the remaining period, the export demand is expected to improve further, with Iran also expected to join the order booking.

Further, steady domestic demand growth would add to the overall improvement in realisations for the industry. Paddy production is expected to be lower in FY2017 by 15-20 per cent. Thus, paddy prices have opened higher by around 20 per cent in the current procurement season starting October 2016 and are expected to remain firm, said the report.

Nevertheless, this is expected to be outweighed by the growth in realisations in H2 FY2017 and FY2018.
The Government's recent demonetisation move has also
resulted in a cash crunch in the system, thereby leading to deferment of paddy procurement by some millers/traders.
Further, given that a large part of the rice industry is unorganised; many buyers may witness reduction in their buying capacity. However, this is expected to be a short-term impact and the steady demand would lead to restoration of buying in Q4 FY2017, it said.