India’s Rice Export Recovery Awaits Iranian Orders

Delay in resumption of imports by Iran is likely to hinder the recovery in Indian Basmati rice exports, says India’s investment information and credit rating agency ICRA in its latest update on Indian Basmati rice industry.

ICRA estimates this as a temporary delay, considering Iran’s insufficient domestic rice production and depleting inventory levels to meet domestic demand, according to Mumbai-based Indian financial services company India Infoline.

In ICRA’s view, the price cap of $850 per ton could pose further hurdles for the Indian Basmati rice industry, given that during the current procurement season, average Basmati paddy prices have been higher by 20-25%. Thus, an inflow of orders from Iran, even after the import ban is lifted, remains to be seen.

According to Deepak Jotwani, assistant vice president of ICRA, “Iran is a major export destination for Indian Basmati rice and decline in demand from Iran has played a role in the declining realizations of exports from India–from $1,298 per ton in fiscal year 2014 to $784 per ton in eight months of fiscal year 2017.”

Iran is among major importers of Basmati rice from India. However, over the years, the Iranian government imposed a ban on the import of Basmati rice as per the movement in inventory held by its rice traders and the interests of its local farmers during the harvest season.

Iran last imposed a ban on import of Basmati rice in July 2016. Since the ban persisted against industry expectations, the government of India sent a trade delegation to Iran in January 2017 to resolve the issue.

Following this, the import ban was expected to be removed soon. While there has been no official notification from Iran, a group of large Basmati rice importers in Iran have recently capped the price of Basmati rice imports at $850 per ton.

In another adverse development for the industry, the US has recently imposed fresh trade sanctions on Iran, which restrains Iran’s use of the US dollar for trade. These two developments have created uncertainty around the resumption of Basmati rice exports to Iran.

The Iranian government has recently amended tariffs for importing rice by reducing it from the previous 40% to 26%. It was announced on January 21 that the rate would stand at 5% following a series of tariff cuts on a list of agro-food products.

According to the Ministry of Agriculture, Iranians consume more than 3 million tons of rice every year, of which almost 2.2 million tons are supplied by domestic farmers.