Rice: peaking supply, stiff competition

Rice sales typically peak between March and July and Pakistani exporters should be gearing up for the market to heat up in more ways than one this year. The period is crucial as later in the year, exports from Thailand and Indonesia enter global markets. Last year the same favourable export pattern of rice followed. However, local exporters also had had an added benefit. Despite lower export volume compared to 2010, Pakistan managed to earn substantial foreign exchange due to better prices. The heavy losses in Thailand; the worlds largest rice exporter were the main cause behind spike in rice prices. However, this year exporters can stiffer competition from closer quarters as Indian rice exports are expected to step up competition. Talking to BR Research, a representative of Rice Exporters Association of Pakistan (REAP) said that in the coming quarter Pakistani rice exporters fear severe competition from India. He added that in the last six months, the Indian rupee depreciated by 18 percent making India a much cheaper market for foreign buyers compared to Pakistan. He supported his argument by giving the example of tomatoes; he said that Pakistani markets are flooded with Indian tomatoes as they are much cheaper than Pakistani grown tomatoes. He further stated that in last 20 years Indian researchers have made 12 to 14 different varieties of rice that suit different clients. On the other hand, Pakistan has only four or five varieties of rice. This wide variety of rice attracts more foreign buyers to India. Also threatening rice exporters are the declining global rice prices. According to United Nations Food and Agriculture Organisation (FAO) global paddy production in 2011 was expected to be three percent higher than 2010. This estimated increase in production is backed by increase in the total harvested area, which according to FAO was 2.2 percent higher in 2011 compared to 2010. Farmers grew more rice in 2011 to make the most of high rice prices. However, this resulted in excess supply and lower prices. The declining trend can be seen in FAOs all rice price index. The outlook for rice in 2012 is not that bright, so achieving the same level of exports as last year may prove a challenge for Pakistan.