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Basmati exporters hold shipments to Iran fearing payment defaults

Virendra Singh Rawat/Lucknow 23 May 19 | 11:31 AM

With no let-up in the US sanctions on Iran and the prolonged standoff only getting worse by the day, Indian basmati exporters are holding on their shipments to Iran, fearing payment defaults or delays.

The lack of clarity on future exports and imports from Iran, coupled with growing uncertainty over payment terms going forward, have made the exporters jittery of meeting their export commitments with counterparts in Iran.

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“Unless there is new agreement with the Iranian government on export terms, we've decided to put shipments on hold as there are chances of defaults and money getting stuck," Kohinoor Foods joint managing director Gurnam Arora told Business Standard.

Although, there is no definite data available as per the consignment stuck on this count, it is pegged at 20,000-30,000 tonnes at present with possibility of accumulation if situation persists.

While basmati exports to the gulf nation stood at nearly a million tonnes (MT) last year, they were estimated at nearly 1.4 million tonnes this year, a hike of 40 per cent. In its report, rating agency Icra had even forecast that export market demand would remain steady over the next few quarters, ably supported by resumption of imports in the key market of Iran. This was before the US sanctions came in.

The apprehensions of Indian basmati exporters have accentuated over lingering suspense on the continuity of Indian import of Iranian crude in backdrop of the US sanctions. Earlier, the Centre had apprised the visiting Iranian foreign minister of taking a call on the issue post Lok Sabha polls.

“So far, our exports were denominated in rupee terms and there was barter trade against oil, but now there is utter confusion on the mater. Therefore, the exporters have been advised by our association to hold on to their respective shipments unless there is some clarity," he said.

Nonetheless, the exporters are not overtly worried, at least in the short term, given the shortage of basmati in the domestic market owing to lower crop output.

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“Our consignment could be sent to other destinations if Iran bound contracts do not materialise. Besides, basmati market has witnessed some upswing owing to short supply this season," Arora informed.

The exporters are awaiting the formation of the new central government and the policy stance it takes regarding exports and imports, including Iran.

Icra assistant vice president Deepak Jotwani said although there was no restriction of trade with Iran, yet there was lack of clarity on issues of payment and continuity of export. “We expect these issues to be sorted out with the new government at the Centre."

However, he claimed even temporary suspension of basmati trade with Iran would impact the market, since Iran was a major destination for Indian basmati rice. “Much would also depend upon what Iran also decides regarding the import of commodity from India."

Till a few weeks back, basmati exports were projected to hit record levels of Rs 30,000 crore or nearly US$ 4.28 billion (pegged to exchange rate of Rs 70) this season. While, basmati export basket is wide, most exported variety of Pusa 1121 had witnessed average procurement price of Rs 35,000-38,000 per tonne during the current 2018-19 season, compared to Rs 33,000-35,000 per tonne during 2017-18, a hike of 8.5 per cent.

However, basmati export realisation inflated at a much higher ratio of 14% to more than Rs 74,000 per tonne during Apr-Jan 2018-19 against Rs 65,000 per tonne during the corresponding period of last financial year.

Continuing the growth momentum, India had clocked basmati exports worth US$ 4.10 billion during the first 10 months of 2018-19, which was nearly 12 per cent higher compared to $3.68 billion in the corresponding period last fiscal.

Basmati paddy prices have been ruling high over the last two financial years 2016-17 and 2017-18, while in the current season, basmati production has been lower by five per cent due to the decline in acreage as some farmers had shifted to non-basmati varieties due to a considerable increase in Minimum Support Price (MSP), besides some loss of crop due to untimely rainfall in a few key Basmati growing states.

As a result, the paddy prices firmed up by more than 10 per cent across varieties. The increase in basmati average realisations is likely to sustain in the first half of 2019-20 owing to the increase in paddy costs in the recently concluded procurement season and steady international as well as domestic demand outlook, ICRA note added.

Crucial Grain

Volume of basmati shipments to Iran on hold over US sanctions – 20,000-30,000 tonnes (according to sources)Basmati exports to Iran last year – 1 million tonnesBasmati exports to Iran this year – 1.4 million tonnesBasmati exports were pegged at Rs 30,000 cr before Iran crisis stiffenedBasmati production lower by 5% this season due to lower acreage

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