From a record performance of nearly four billion dollars during the last financial year, Pakistan’s rice exports are set to decline by more than a billion dollars during the ongoing FY2024-2025. An estimated decline of $1.1 billion in annual earnings from rice exports will create a significant gap in the precarious balance of trade, at a time when import restrictions are being eased and the import bill—especially for items in the agriculture and food sectors—is expected to approach its average levels.

During the outgoing financial year 2023-24, Pakistan’s rice export sector delivered what can only be termed a pleasant surprise. Amid historic fiscal consolidation and monetary tightening that nearly stalled the macroeconomy, Pakistan’s rice sector (almost) doubled its export revenue within a year. The sector’s exceptional performance came at a critical time, providing much-needed support as revenue from textile exports—Pakistan’s largest industry—declined for two consecutive years.

This extraordinary performance, however, was not entirely due to local efforts. First, the export figures appeared outsized compared to the previous year, as the rice crop had suffered significant losses during the 2022 monsoon floods, which led to a collapse in exports that fiscal year. Second, global rice prices surged after India—the world’s largest producer and exporter of South Asian rice varieties—implemented a partial export ban in the lead-up to its 2024 general elections.

Between the 2022 monsoon floods and India’s 2024 elections, global rice prices rose by nearly 50 percent, with prices of coarse varieties increasing from $400 to $600 per metric ton on average. Although local processors and exporters could not take credit for this fortunate turn, they met the challenge. Over the last 12 months, Pakistan exported over 5.25 million metric tons of coarse rice at an average price of $582 per metric ton, making it the world’s third-largest exporter of coarse rice, behind India and Thailand.

But good times don’t last. Over the past 10 months, global coarse rice prices have fallen nearly 20 percent, with further declines expected in the coming months. Rice production is set to increase by at least 5 percent in all major producing regions, with global production forecasted to rise by more than 10 million metric tons compared to last year. Similarly, India’s lifting of its export ban has eased the tightness in world rice trade, with global trade volumes expected to reach the record 56 million metric tons last seen in 2022, according to the USDA.

Meanwhile, back home, the tables have turned significantly. Rice production, which exceeded 10 million metric tons last year, is expected to fall below 9.5 million metric tons. Although the area under cultivation remains near last year’s levels, higher temperatures and extended summer days have reduced productivity, offering farmers less return on investment.

On the export side, the processing industry faces tougher conditions. Not only is it adjusting to regular income tax obligations, but the exchange rate is also backsliding, with limited prospects for substantial gains on proceeds compared to last year.

Pakistan’s rice exporting firms may have seen their most profitable year in over a decade. To sustain or increase export earnings, firms will need to target volume growth, an area where they have historically had limited flexibility compared to the dominant Indian export industry. Given this reality, the path forward involves exploring non-traditional markets and targeting previously unexplored regions in Africa, Central and South America, and the Far East.

However, this approach may take several years to yield results. In the short run, Pakistan’s rice exports are likely to lose at least a billion dollars in revenue. Are policymakers prepared to deal with the fallout on the trade balance?