Basmati: Let market forces prevail

International markets have been abuzz with expectations that rice prices would rise in the aftermath of floods in Thailand. According to an estimate by USDA, floods destroyed more than 20 percent of the rice crop in Thailand, which accounts for more than 30 percent of global rice supply. However, many commodity analysts believe that flood-related crop losses were not the major factor behind recent increases in rice prices. Their analysis is based on the fact that sufficient supply from other rice-producing countries that registered improvements in yield and had ample carryover stock from last year maintained. Analysts believe that the main culprit behind this increase was the Thai governments rice buying programme. However, these irrational prices set by the Thai government led buyers from all over the world to revert to rice producing countries like Pakistan and India which are offering relatively cheaper rates. A somewhat similar case can be seen in Pakistan where the rice growers are demanding that a Minimum Export Price (MEP) of basmati should be set at $900 per ton. The growers cite India as an example which had introduced a similar price floor for basmati rice. Local rice farmers believe that this would bring better remuneration for farmers and more foreign exchange to the countrys coffers. But they appear uninformed that India had set MEP at $900 per ton, to prevent export of non-basmati rice under the Basmati brand name. The move was part of that countrys attempts to quell double-digit inflation. At present, India is expected to revise down the MEP as it believes that at this level, its rice exports would not remain competitive given improved yields and high carryover stock in India and other rice producing countries. Talking to BR Research, a prominent rice grower asserted that "since basmati is only grown in Pakistan and India, its price can be set in a monopolistic fashion", adding that a minimum price of $900 per ton should be set for exports of basmati rice from the country. However, a comparison of basmati rice with prices of other varieties of the food commodity show a fair correlation, thus highlighting those prices of basmati cannot be manipulated by suppliers in isolation of other factors. Since prices of other rice types are expected to decline further given the slight retardation of demand from the developed countries and sufficient supply from the South Asian region; a fall in prices of basmati rice also seems inevitable. Current market conditions do not bode well for any attempts to artificially prop up prices for basmati exports. Therefore, the task of setting prices should be left to market forces of demand and supply, which are, undoubtedly, the best price setters.