Basmati Rice prices have witnessed a significant fall beginning of this week. Prices of 1121 Creamy Sella dropped to INR 71 per kg from INR 76 per kg and 1121 Steam prices fell down to INR 82 Per Kg from INR 88 Per Kg. Similar decrease in prices were witnessed in other hybrid basmati varieties such as 1509 Basmati, Pusa 1401 Basmati and PB-1 varieties.
Iran Factor
US sanctions have hit Iran significantly since beginning of May this year. The rupee mechanism of payments using escrow account between UCO bank and banks in Iran can last upto the end of the year due to negligible imports from Iran since May. There are sufficient funds that can last upto 6 months to pay exporters of basmati rice, pharmaceuticals, medical equipment, tea, machinery, paper and chemicals. Similar sanction situation have resulted in payment defaults by Iran importers in the past because of which many exporters of basmati rice are still sceptical about exporting to Iran.
Low Domestic Demand
Increased prices since the beginning of the year have put off domestic traders of basmati rice. There has been very low demand throughout the year for premium basmati rice qualities in Indian domestic market. Stocking at these prices is very high risk for small traders who do not have the cushion to endure losses. Recent fall in prices would help pick up short-term demand in the domestic market.
NCDEX Listing of 1121 Basmati Paddy Futures
After much anticipation, NCDEX listed 1121 Basmati Paddy futures on 9th of July 2019. Although this has nothing to do with the price drop but experts do feel a small role played by this move. A basmati rice trader was quoted saying “as if governments help to farmers wasn’t enough now that NCDEX is listing Paddy futures to help farmers fetch better prices of basmati. This is not a good move by the government to allow NCDEX to list paddy futures as rice millers will be forced to buy basmati paddy at high prices without any surety of fetching high prices of rice in the International market.”
Strong Rupee
Rupee has moved to its strongest since August 2018 closing yesterday at 68.30. The significant drop from INR 70 to INR 68.30 affected basmati rice importers who are not willing to pay higher rates after conversion in USD. This resulted in exporters procuring at lesser prices in INR and thereby having a significant effect on basmati rice prices.
Anticipation of New Harvest Season
In less than 3 months, we can expect harvest of basmati hybrids such as 1509, Sugandha and Pusa 1718. Traders and millers of basmati rice are aware of this situation and price dropping is essential for them to procure raw material from farmers at lesser prices during harvest season.