India's Basmati dominance

Earlier this week, BR Research wrote about the falling Basmati exports and how India has asserted its dominance over Pakistan in all the markets. In continuation of that discussion, todays article will focus on the rise of Indian Basmati exports and the subsequent decline of Pakistan's.

Although the SBP data on exports by commodity/country does not classify the type of rice exported, BR Research spoke to officials of REAP and got an idea of which markets are Basmati; Saudi Arabia and Iran, followed by other Gulf countries.

These also happen to be the top three destinations for India's Basmati rice, as per data available with the All India Rice Exporters Association.

As is clearly evidenced in the graphs, Pakistan has lost a lot of the earnings coming in from its top-most Basmati regions in FY15 - rice exports to Saudi Arabia and UAE fell by 22 percent and 32 percent year-on-year in value, respectively. One might say that this loss in value was due to the commodity crash, and that would be absolutely true. But theres more to it than that.

In FY15, the volume of Pakistan's total Basmati exports declined by 14 percent year-on-year, as per PBS data. Meanwhile, the quantity of other varieties of rice exports skyrocketed by 44 percent that same year. Clearly, Basmati exports are down and there is a shift towards the cheaper, Irri-type varieties. Putting two and two together, we can conclude that a large part of the dollars lost from rice exports to these countries is due to a drop in Basmati variety (See BR Research: "Rice exports down on Basmati slump," Published November 30, 2015).

Meanwhile, our neighbour seems to have earned more from its rice exports to both Saudi Arabia and UAE by 5 percent and 37 percent year-on-year, respectively. Moreover, India managed a decline of just one percent in the volume of Basmati sent abroad in FY15, while Pakistan lost 14 percent. So, India seems to be doing just fine in its Basmati markets, while we are losing our share.

As for Iran, both Pakistan and India seem to have lost an important market. The loss for India, however, seems far more pronounced. This seems to confirm what is being already said; Iran cut its Basmati imports last year and India lost out on a very huge market, so it began aggressively marketing its Basmati to other countries. And clearly it did a tremendous job; the country that accounted for around 40 percent of its Basmati trade in FY14 saw a decline of over 35 percent year-on-year, yet India still managed to keep Basmati volumes stable.

REAP made a presentation to the government some months ago to highlight the issues in Pakistans rice industry, with some focus on competition from India; the Indian government gives approximately 35 percent subsidy to its farmers and provides all necessary inputs such as pesticides on subsidized rates. In Pakistan, a bag of Urea costs Rs2400, whereas the same is for Rs800 in India. Moreover, an industry source said that Indias extensive research into Basmati has engendered varieties that give twice the yields.

In conclusion, there has been a sharp fall in Pakistan's Basmati exports (both volume and value) while India has stood firm. The growing share of India in Basmati-consuming countries like UAE and Saudi Arabia indicate that it is pushing other players out of the market. The government needs to facilitate its rice industry to restore competitiveness of the second-largest forex earner after textile.(A key assumption being made here is that the vast majority of Pakistan's rice exports to these regions are in the form of Basmati rice. The average annual exchange rates between the Indian Rupee and US Dollar have been taken from the website of the Internal Revenue Service.)