Indonesia, the world's third-biggest rice consumer, has asked India for supplies of the staple food grain after floods hit top rice exporter Thailand, potentially disrupting shipments. India, the world's second-biggest producer and consumer of rice, is willing to sell 500,000 tonnes from government stores as warehouses are overflowing after bumper harvests.
But it has also sought a cut in Indonesia's export tax on crude palm oil, which threatens to hurt local refiners. India is the world's biggest vegetable oil importer. Indonesia needs about two million tonnes of imported rice to stave off shortages at home as this year's crop is smaller than a year earlier. Bulog, Indonesia's state-run grain procurement agency, has permits to import 1.6 million tonnes.
The government-backed firm has already sealed deals with Thailand and Vietnam to import about one million tonnes. Indonesia expects domestic output of 65.4 million tonnes of unmilled rice in 2011, slightly above expected annual demand of around 63 million tonnes, so Bulog's imports are intended to ensure supplies of rice remain stable in a country where food security and inflation are a priority for policymakers.
Indonesia has been in talks with India on the possibility of buying rice for weeks, given attractive Indian prices. The country wants 250,000 tonnes of rice for February or March delivery. India has said it could sell up to 500,000 tonnes this year from government stocks.
Indonesia has three options: it can buy from the Indian government or it can ask the Indian authorities for supplies at a discount or it can import from private companies. If Indonesia opts for a straightforward government-to-government deal, the Indian foreign ministry needs to process the request and pass it on to the food ministry, which has already given a nod.
If Indonesia asks for lower rates, the Indian cabinet has to approve that. There has been no decision yet on supplies through diplomatic deals. Though there are no business-to-business deals yet, Indian traders are expecting such transactions to take place in the next 10 days or so. Some Indian traders believe Indonesia would prefer to buy from private mills rather than the government to avoid procedural hassles.
India gave mills permission for two million tonnes of exports in September, lifting a three-year old ban. Indian rice mills are likely to offer 5 percent broken rice to Indonesia at $470-$475 per tonne free on board, about $100 cheaper than supplies from Thailand and Vietnam.
Many traders see any trade deals as a one-off because India is not a regular rice exporter. It banned exports in 2008 when a global shortage forced almost all major producers, including Thailand to ban exports to ensure domestic supplies.
Any supply to Indonesia after this year would need the Indian cabinet's approval, and India's own commitments are set to rise if a food security bill, which promises to increase the amount of cheap grains supplied to the poor, becomes law. India's rice consumption currently hovers around 92 million tonnes with output at about 100 million tonnes.
India is merely trying to make use of Indonesia's need for rice for its own benefit, but even the authorities concede that it was Indonesia's sovereign right to change its export tax. Food Minister K. V. Thomas left the latest talks with Indonesia on rice last week saying he had "sought a reduction" in the export tax on crude palm oil (CPO). Indonesia is the world's biggest producer of the edible oil and India is top customer.
Indian trade and government officials said they would take up the issue of lowering the tax with Indonesia, but would not make that a condition for selling rice. Prime Minister Manmohan Singh travels to Jakarta later this month to take part in a multi-lateral trade meeting.
Indonesia cut the export tax on refined palm olein and raised the tax on overseas sale of the crude variant to boost sales of finished products, hurting the domestic refining industry in countries such as India. India's edible oil refiners have decried the tax increase and called for retaliatory action from the government to what some have called a "death blow".
Indonesia could step up rice imports from Vietnam and Pakistan could be another source. Supplies from Thailand will be normal once flood water recedes there, as Thailand has ample rice stocks. Thailand and Vietnam are the two major exporters in Asia. Of the 30 million tonnes of rice traded globally, the two south-east Asian countries account for about 16 million to 17 million tonnes and Pakistan for some 3 million to 3.5 million tonnes.
Comments
Comments are closed.