Floor Price of Basmati- A Way for Growth or a Path into Recession

-By Aastha Singh

It was last seen on 12 September 2023 that India’s Global market share in basmati rice after following the government’s decision to fix the MEP (Market export price) at $1200 per tonne for the commodity started declining to a point where, for a food fair in Turkey, no Indian companies received orders for the new basmati crop because of the high price.

Even after receiving pressure from the outside world as well as their own farmers and crop producers, the government continued to remain fixated on the floor price. This led to the farmers in Punjab, Haryana, and western Uttar Pradesh facing losses of ₹8,000-10,000 per acre. Prices of the new crop dropped by ₹400 per quintal. On facing the issue of losing the hard-earned buyer base to their competitors such as Pakistan as well as the increasing problems and issues faced by the farmers, the government did begin speculation on this topic. 

However, on August 27, they decided to retain the floor price to prevent the shipment of non-basmati rice disguised as premium basmati. In response, Basmati exporters and millers in Haryana, Punjab, and western Uttar Pradesh stopped purchasing rice from wholesale markets.

Based on representations received from the rice exporter associations stating that the high FOB (free on board) value was adversely affecting the export of basmati rice from India, Food and Consumer Affairs Minister Piyush Goyal attended a consultative meeting with the basmati rice exporters and after communications with the Export promotion body APEDA, The government finally decided to lower the price to $950 per tonne.

This will have a lot of implications only for the farmers and the economy of the country but also for the future possible relations that the country can establish and grow, Thus, in this article we will explore more on the implications that this decision will have on all the economic spheres of the country.

Due to the reduction in the Minimum Export price of basmati rice by the government of India from $1,200 to $950/tonne, a growth surge in orders for the same was, but a statement of obvious, and this was showcased in the form of increasing orders from many large buyers in Turkey. This resulted in an increase in the prices of basmati rice to $975-$1000/tonne in the export market.

Farmers in Haryana, Punjab as well as western UP are now able to get ₹3,900 per quintal for their basmati paddy crop, a Rs 700 per quintal rise within a week which was fielded by the heavy demand from the global markets for basmati rice.

“ The old contracts kept in abeyance because of the sub-$1200 price per tonne are being shipped now. New orders are pouring in with large buyers from Turkey visiting India to pick up good volumes of basmati rice,” 

~ Vijay Setia, a basmati exporter and past president of All India Rice Exporters Association (AIREA)

This rise in exports is expected to take a toll on the pockets of the regional consumers because as the demand has risen for the goods in the export market, due to the reduced MEP, domestic prices for the same have increased by 9% in just five days.It is expected to increase more in proportion to the surging exports of basmati rice. It is also expected that the price will rise by another 10% within a month.

While concluding this article, I would like to reiterate some facts and figures about the rice export industry. Of the total acreage of 1.7 million hectares under basmati rice, the 1509 variety accounts for about 40% of the area. Exports of basmati rice in 2022-23 stood at 4.5 million, valued at Rs 38,524.11 crore, with the Gulf nations being the major buyers. More than 80% of basmati rice produced in India is exported.

Due to the sheer amount that basmati rice contributes towards the exports of the country, it is imperative to understand that the market needs to be kept under strict watch to ensure that it’s not only safe and secure for the buyer but also transparency is maintained within the transactions to ensure a secure and fair deal to the farmer as well. 

Some things that need to be ensured and kept in practice are-

  • Regular checks of the commission agents ( who buy paddy from farmers)to ensure that they are giving the right price to the farmer.
  • Carrying out a transparent and fair transaction system such as the implementation of blockchain.
  • Making informed decisions keeping in mind the feasibility as well as the sentiments and stance of the stakeholders.
  • Strong connections with international buyers fuelled by trust and experience.
  • A regulated and feasible competitive pricing strategy.

The government needs to ensure that the growth and welfare of the economy is not costing the stakeholders. The decision by the government to reduce the MEP overall has had a quite positive impact on the entire economy. The rising exports have acted as a cake addition to the economy while also ensuring the welfare of the farmers.

Citations:

Pti. (2023, October 26). Govt cuts floor price of basmati exports to USD 950 per tonne. The Economic Times. https://economictimes.indiatimes.com/news/economy/foreign-trade/govt-cuts-floor-price-of-basmati-exports-to-usd-950-per-tonne/articleshow/104731604.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Ghosal, S. (2023, September 18). Basmati export floor price to hit farmers. The Economic Times. https://economictimes.indiatimes.com/news/economy/agriculture/basmati-export-floor-price-to-hit-farmers/articleshow/103766521.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Ghosal, S. (2023a, September 11). India losing market share for basmati rice. The Economic Times. https://economictimes.indiatimes.com/news/economy/agriculture/india-losing-market-share-for-basmati-rice/articleshow/103587408.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Ghosal, S. (2023, November 2). Many large buyers from Turkey land in India to buy basmati rice; prices surge. Economic Times. https://m.economictimes.com/news/economy/agriculture/many-large-buyers-from-turkey-land-in-india-to-buy-basmati-rice-prices-surge/amp_articleshow/104915036.cms