The domestic basmati rice industry, which is witnessing excess supply and weak demand, may revive in the next harvest season in the second half of 2016-17, a report said.
"The basmati rice industry faced headwinds - weak demand and oversupply in FY16. The current scenario of excess supply and weak demand is expected to continue in the near term and exporters are likely to continue facing financial stress in the near term.
"Any improvement in the situation is likely only from the next basmati paddy harvest season in the second half of 2016-17 due to improvement in demand," rating agency Icra said in its report in Mumbai.
The supply of basmati paddy is expected to witness some moderation as farmers are likely to shift away from basmati, given the non-remunerative prices in the last two crop cycles.
Moreover, since Iran has removed the ban on import of rice, demand is also expected to witness some improvement, it said.
Rice is one of the most crucial food crops in the world and a staple diet for nearly half the global population. Over 90% of the global rice output and consumption is centred in Asia, wherein the world's largest rice producers, China and India, are also the world's largest rice consumers.
India accounts for over 70% of the world's basmati rice production. Basmati rice constitutes a small portion of the total rice produced in India.
By volume, the share of basmati rice is around 6% in 2014-15, even as by value, basmati rice exports account for 57% in 2014-15, of India's total rice exports.
Basmati rice exports have increased at a compounded annual growth rate (CAGR) of 27% from Rs 28.24 billion in 2004-05 to Rs 275.98 billion in 2014-15.
The proportion of basmati rice exports in India's total exports has increased from around 0.6% to around 1.3% during the last one decade.
While basmati rice is consumed across the globe, West Asian countries account for 75% of Indian basmati rice exports in 2014-15.
Within West Asia, Iran and Saudi Arabia are the two largest buyers, together accounting for over 50% of basmati rice exports from India.
However, even as Iran emerged as one of the largest importers of basmati rice in recent years, the country imposed a ban on basmati rice imports from India in 2014-15, citing its own healthy rice crop and large basmati inventory.
Commenting on pricing scenario, Icra said basmati paddy is also vulnerable to cyclical price fluctuations. Higher prices in the market encourage higher basmati paddy cultivation, which increases supply in the next season.
This depresses the price, thereby erasing gains and shifting farmers away from basmati paddy cultivation.
During the procurement season of 2012-13 and 2013-14, there was a steep rise in paddy prices from around Rs 18,000 per tonne (MT) in 2011-12 to around Rs 37,000 MT in 2013-14, due to strong demand in the international market.