The case for uniform minimum export price for rice, without basmati distinction

The actions

On May 13, 2022, the government imposed a ban on wheat exports. On June 12, 2023, stock limits were imposed, with wholesale traders and big retailers not being permitted to hold more than 3,000 tonnes at any time. The limits were set at 10 tonnes for small stores and at 75% of the annual installed capacity for wheat millers.

On September 8, 2022, exports of broken rice were prohibited, and a 20% duty was levied on all white (non-parboiled) non-basmati grain shipments. On July 20, 2023, exports of white non-basmati rice were banned altogether — only parboiled non-basmati and basmati exports were allowed.

Last Friday (August 25), a 20% duty was introduced on all parboiled non-basmati rice exports “with immediate effect”. Also, the Agricultural & Processed Food Products Exports Development Authority (APEDA) was directed not to issue registration-cum-allocation certificates for any basmati rice consignments contracted at a price of $1,200 per tonne.

This minimum export price (MEP) stipulation was in order to prevent any “possible illegal exports of white non-basmati rice in the garb of basmati rice”.

The intent

The government’s intention has been to slow down, if not halt, exports and thereby improve domestic availability of grain.

Retail food inflation averaged 11.5% year-on-year in July based on the official consumer price index. The average all-India modal (most-quoted) retail price of rice is currently Rs 40 per kg, as against Rs 32 a year ago, according to Department of Consumer Affairs. Wheat atta (flour) prices have gone up from Rs 30 to Rs 32 per kg in the last three months, and from the Rs 24 levels of two years ago.

This price surge doesn’t seem to square with the Agriculture Ministry’s estimates of record production of both rice and wheat. If output has been higher, and the government’s procurement in the last two years lower than that of 2020-21, there would be more grain available to drive down open market prices. Instead, the opposite has happened, so much so that the government has been forced to restrict exports with a view to augment domestic availability.

The limitations

Selective export controls — like the ones in rice — are prone to circumvention through misclassification. In this case, it has involved export of white non-basmati rice under the Harmonized System codes (heads) of parboiled and basmati rice. The Commerce Ministry has reported basmati export cargoes being contracted at as low as $359 per tonne, when parboiled rice with 5% broken grains from India is going out at around $480 per tonne.

According to traders, the bulk of basmati exports are happening at $1,050-1,100 per tonne for the parboiled Pusa-1121 variety. The range is lower ($950-1,000) for parboiled Pusa-1509 basmati rice. Parboiling is a process in which fresh paddy is soaked and steamed after draining the excess water, and this partially boiled paddy is milled to remove the husk and bran. The resultant rice grains are harder, with less broken content and more micro-nutrients from the bran that are otherwise lost during polishing.

“The $1,200 MEP is too high. Only steamed Pusa-1121 and 1718 rice are fetching $1,200-1,300, apart from the traditional premium basmati quoting at $1,550 per tonne. These together make up hardly 15% of our basmati exports,” an exporter said. Steamed rice is obtained from dry paddy that is put in a steam tank for about 10 minutes and then shade dried, shelled, and milled. The objective is to accelerate the aging of rice (which otherwise takes 8-9 months), although it leads to more breakage of grains.

Vijay Setia, a former president of the All-India Rice Exporters’ Association, said the government should do away with the distinction between basmati and non-basmati: “Let there be a uniform MEP of $800-900 per tonne for all rice, whether basmati or parboiled and even white non-basmati.”

The advantage

The assumption behind fixing an MEP only for basmati — that too, at $1,200 per tonne — is that there is no other premium quality rice in India.

In fact, a host of such varieties are grown in Gobindobhog in West Bengal, Kalanamak in eastern Uttar Pradesh’s Terai region, Chak-hao in Manipur, Red Matta in Kerala, and Ponni in Tamil Nadu. Each has an export market, especially among NRIs, either ready or waiting to be developed.

A uniform MEP of $800 per tonne — Rs 66/kg or Rs 60 after deducting costs of packaging, transport, port handling and other miscellaneous charges — would allow export of all these high-value varieties without impinging on domestic food security. Apart from the basmati growers of Punjab, Haryana and western UP, those cultivating other premium varieties not sold through PDS would also be insulated from trade policy vagaries.

For the government, too, there will be no issues relating to misclassification or illegal exports of non-basmati masquerading as parboiled or basmati rice. Nor would it have to worry much about rice consumed by the poor and vulnerable households being shipped out at a time of high cereal inflation.