New rice battleground

Being elbowed out of traditional markets by India is not a new circumstance for Pakistan. The latest red flag is raised by China removing phytosanitary restrictions that prevented non-Basmati rice imports from India.

It has been fairly accepted by all corners that the Pakistan-China FTA has not been in the best interests of the country. However, while the trade agreement has been a driving force in creating the $9.7 billion trade deficit, the simple fact of the matter is that Pakistan’s resource based goods cannot offset Chinese value added imports. The only stance that trade agreement negotiators can take is for unilateral concessions with Pakistan getting preferential access that has been eroded away because of China Asean trade agreement. (For more information read “Pakistan-China FTA farce”, published on September 22, 2017)

Rice is a particular bone of contention because it is an export that can be increased manifold, if not for the tariff constraints. The nearly $2 billion rice market of China is dominated by Asean countries since the 33.7 percent tariff levied on their imports is nearly half of the 65 percent custom duty faced by Pakistan’s exporters. If Pakistan was to be given similar preferential tariffs, current exports of $124 million could grow fairly easily.

Recall that China is not a Basmati rice eating country. China had given Indian basmati rice access but banned all other varieties based on phytosanitary requirements. However, this protocol was amended during Modi’s visit to China earlier this year. Since there is limited demand for Basmati rice, Pakistan was the only major non-Asean rice supplier. This can change as the amended protocol allows Indian non-Basmati rice imports, the first of which will be exported this year.

India and Pakistan face the same tariff on rice imports therefore going forward, the rival countries have a new battleground to butt heads in. At $7 billion exports in 2017, it is needless to say that India is a much bigger rice producer and exporter compared to Pakistan’s $1.6 billion. UAE, Kuwait, Saudi Arabia, UK, USA, and Australia are some of the other destinations that Pakistan and India compete with each other in the rice arena. As per a 2010 TDAP report, India is ahead of Pakistan in all these markets.

If the Pak-China FTA is not renegotiated to allow for better tariff access, it is possible that Pakistan will lose one of its biggest rice markets to India. Given the importance of rice in Pakistan’s export basket and the incumbent government’s aspirations for $27 billion exports, increased Indian access to Chinese market may put a crimp in national plans.