If provisional estimates by provincial Crop Reporting Services are to be believed, Pakistani farmers are set to produce a record paddy crop output in the ongoing kharif season of 2020-21, backed by massive expansion in acreage of 13 percent. At a time when output of other major crops is marred by uncertainty due to damage caused by extreme weather and risks to demand (due to Covid), the confidence reposed by farming community in the paddy crop warrants investigation.
Despite its significant popularity as an indigenous cereal, Pakistan’s rice production is primarily geared towards export. A decade ago, Pakistan exported as much as 75 percent of its total rice output, buoyed by demand for basmati and non-basmati (IRRI and hybrid) varieties.
Since then, a loss of price competitiveness of basmati variety to exporters from neighbouring India led to a loss of momentum for basmati exports; however, increasing demand for hybrid varieties with lower cost of production helped in keeping rice production on growth track, even in water scarce regions of interior and lower Sindh. In the past two years, there have been early indicators of a trend reversal, as basmati rice has regained edge in pricing due to currency devaluation.
But FY21 has brought a fresh share of its own challenges. As a greater number of paddy growers switched back to basmati to take advantage of the export bonhomie, the status of basmati exports is itself under scrutiny. Regular readers will recall that India has challenged Pakistan’s right to call its aromatic variety basmati, a legal question that is currently being litigated at EU.
(For background reading on the issue, read: “Basmati: biding time”; “Basmati: what is at stake?”; and, “Basmati exports under threat?”, series of columns published by BR Research between October and December 2020)
But the status of basmati exports is not all that is at risk. During 1HFY21, volume of total rice exports has declined by nearly 10.5 percent over same period last year, led by a massive decline of 38 percent in basmati volume.
In fact, rice exports have been on a downward trend ever since global economy underwent its first phase of lockdown circa March – April 2020, as global demand for grains came under pressure. Recall that after registering a 27 percent growth in both volume and value of cereal export during 1HFY20, Pakistan closed 2HFY20 in negative territory, as volume and value declined by 15 and 9 percent, respectively.
Which raises a question: given that the paddy crop is sown beginning April – May throughout the length of the country, did Pakistani farmers missed the signal, and ended up expanding acreage under paddy despite growing demand uncertainty? To answer this question, look towards unit prices fetched by rice exporters during 1HFY21.
Between Jul-Dec 2020, average unit prices fetched by basmati and non-basmati rice varieties each grew by 11 percent. As major cereal exporting countries across the world have gone into building reserve stocks for domestic consumption fearing a global commodity price spiral, Pakistan’s exporters have gained from the hiccups in global rice supply chain, getting more bang for their buck in the process.
Meanwhile, a cursory look at domestic rice prices corroborates this trend. As per CPI for Dec-20, national average domestic retail prices for basmati and IRRI varieties have risen by 9 and 15 percent, respectively, indicating that rice millers and dealers do not foresee a glut in domestic market despite dwindling export volume between Apr – Dec 2020. It seems domestic rice value chain will remain undeterred from creating exportable surplus for the foreseeable future.
Comments
Comments are closed.