Rice off to the races

With major commodity indices on an upward trajectory, the price flux has started spreading faster into the rice market.
The disarray in rice market is not as severe as that seen in wheat and maize, but, so far, rice is running a good race. The FAO All Rice Price Index, which is based on rice export quotations from 16 countries, rose by 4 percent in November alone to 260 points - marking a gain of 24 percent since June 2010.
Sentiment in the rice market stems from deteriorating prospects of rice output in various Asian countries, Pakistan, China, the Philippines and Thailand, due to unfavourable climatic conditions. Rice is also gaining ground due to the substitution effect, with wheat bread and maize tortilla prices on the rise.
Taking crop damages into account, the FAO has downgraded world paddy production by nearly 6.5 million tons to 698 million tons in November from its earlier June forecast. However, at this level, world paddy production will be 15.5 million tons above last years level and highest on the record.
Being the worlds fourth largest rice exporting country, upward movement in rice prices is definitely overwhelming news for Pakistan - a country that had exported nearly 4.6 million tons of rice last year and earned $2.26 billion of foreign exchange revenues.
Price of rice varieties grown in Pakistan has seen a much steeper jump compared to FAO All Rice Price Index. The FOB price of Pakistani Basmati rice has risen by around 58 percent in the past five months to $1,200 per ton in November. At the same time, the FOB price of Pakistans 25 percent broken rice also surged to $429 per ton from $340 per ton in June.
But, at present, it seems that Pakistan would not be able to gain much benefit of this price hike, as various flood damage assessment studies suggest that the country is expected to ship less quantity of rice this year.
Estimates of rice crop losses vary; the government painted a dismal picture, putting the number at 2 million tons, while rice exporters estimate it at around 0.5 million tons. If the estimates of Rice Exporters Association of Pakistan are to be taken, Pakistan would be able to export 4 million tons.
"There are no signs of crop shortages, as rice export since the start of current fiscal year till first week of December has reached close to 1.4 million tons", according to one REAP official.
However, the country had exported 1.6 million tons of rice during the first half of the last fiscal year.
If crop damages remain close to 0.5 million tons, there are chances that improvement in rice price would help the country earn export revenue close to last fiscal years level.