The government said on Sunday that the review of the minimum export price (MEP) of $1,200 per tonne, levied on basmati rice exports in August, is still under active consideration. This decision comes as the government extended the MEP until further notice on Saturday.
The MEP was originally up for reconsideration on October 15.
This statement follows reports that some exporters, infuriated by the extension of the MEP on basmati rice, have ceased buying new basmati from farmers. This has led to a decline in open market prices by at least Rs 300–400 per quintal over the past few weeks.
Certain exporters demand that the MEP be lowered to $900–1,000 per tonne to boost overseas sales.
However, a section of exporters and officials has justified the high MEP by arguing that the current free-on-board (FOB) export price of Indian basmati rice, assuming a procurement price of around Rs 3,835 per quintal, stands at approximately $1,170 per tonne in Mundra Port and Jawaharlal Nehru Port Trust (JNPT).
The MEP is only about $30 per tonne more than the FOB price, resulting in a nominal increase in the purchase price for international customers.
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“This is a minimal premium that international buyers can pay for Indian basmati rice, which is already a niche product,” said a trader.
The total final landed price of Indian basmati, based on the procurement price of Rs 3,835 per quintal, amounts to approximately Rs 9,692 per quintal in Mundra Port and Rs 9,688 in JNPT — the two largest destinations for Indian basmati exports around the world.
However, traders advocating for a lower basmati MEP argue that the FOB price is close to the MEP only for old basmati rice varieties.
And, as soon as the new Pusa Basmati 1121 variety begins to flood the market, prices will likely plummet, negatively affecting growers.
Reports suggest that only about 30 per cent of the total basmati crop has entered the market so far, with the remaining 70 per cent expected in the next few weeks.
In response, an official statement issued on Sunday said that the new crop of basmati has begun arriving, and it’s common for prices to decline when the new crop enters the market.
The second argument against a $1,200 per tonne MEP for Indian basmati is that it may shift the market towards basmati produced in Pakistan, India’s closest competitor in the global markets.
Supporters of MEP argue that this shift won’t happen overnight, as Indian basmati rice has commanded a premium of at least 15 per cent over Pakistani varieties in the past.
Pakistan imposed an MEP of $1,103 per tonne on white basmati rice and golden sella basmati rice some time ago, while India’s MEP is $1,200 per tonne.
Data shows that between 2017–18, and 2022–23 Pakistani basmati rice command a premium over Indian varieties in three years, while the reverse occurred in two years.
Their argument against lowering the MEP is that if Indian basmati rice is priced too low compared to Pakistani varieties, this premium may be lost forever.
“In the current scenario, retaining the MEP of basmati could be seen as essential for food security. However, it may also be a cautious move to preserve India’s exclusive geographical indication branding in ongoing free trade agreements. If the Indian floor price is below Pakistan’s MEP, it could erode the premium price of the Indian brand, which could harm our long-term international positioning. Over time, the market will likely undergo a real price discovery of basmati paddy based on this extended floor price,” S Chandrasekaran, a leading trade policy analyst and author of the book Basmati Rice: The Natural History Geographical Indication, told Business Standard.
In a separate decision, the Centre over the weekend has also extended the 20 per cent import duty on non-basmati parboiled rice until March 31, 2024. The import duty on parboiled rice was introduced concurrently with MEP on basmati rice, both aimed at curbing food inflation.
In response to this, the Indian Rice Exporters Federation (IREF) has requested the Centre to impose a flat export duty of $80 per tonne on parboiled rice, as opposed to the existing 20 per cent duty, in order to facilitate smoother trade.
Additionally, IREF has urged the government to reconsider the export ban on white rice that was imposed in July 2023. It also recommends reducing the MEP for basmati rice to $850 per tonne to mitigate potential adverse effects on both export volumes and farmers.