How India is paying the price of rice exports to Iran; the story is of crashed markets, reneging buyers
There are whispers in the market that Iranian buyers are yet to pay for 1.25 lakh tonnes of rice—valued at nearly Rs 875 crore—that had been shipped out in 6,000 containers a few months back.There are whispers in the market that Iranian buyers are yet to pay for 1.25 lakh tonnes of rice—valued at nearly Rs 875 crore—that had been shipped out in 6,000 containers a few months back. (Image: IE) There is now the risk of non-payment/delayed payment/outright loss against large volumes of basmati rice shipped to Iran. There are whispers in the market that Iranian buyers are yet to pay for 1.25 lakh tonnes of rice—valued at nearly Rs 875 crore—that had been shipped out in 6,000 containers a few months back. Small- and medium-sized exporters had entered into contracts with Iranian buyers for rice priced at Rs 65,000-70,000 per tonne—with the average value almost 25% higher than those realised in 2016-17. Reportedly, the Iranian rice market has crashed and buyers have reneged on the contract price. But after protracted negotiations, cargoes are being accepted at a discounted value of around Rs 44,000-50,000/tonne—which effectively means a price cut of about 30%, or an outright loss of Rs 260 crore. Even then, the payment is being offered on a deferred basis, against future purchases by inflating invoice values. This is as per mutual convenience. However, such settlement may vary depending on the understanding between the parties. The result of non-payment/loss at such scale is that payments to farmers for the paddy could also get delayed. Suppliers of PP bags, transporters and handling agents at the port may also remain unpaid. Since exporters generally avail pre-shipment credit from banks, ultimately, banks are exposed to the risk of non-payment—that may worsen the bad loan count. Iran has a regular requirement of Indian Pusa 1121 (parboiled) basmati rice, varying between 0.7 million tonnes (mt) to 1 mt annually depending upon its domestic output. Value-wise, Indian shipment to Iran touched $1.8 billion in FY14, but was down, at $0.57 billion, in FY17. India ships out about 4 mt of such rice in to international markets annually without any serious payment problems. It is not the first time that shippers have had to face delayed-/non-payment by Iranian buyers. There have been defaults/short payments in past as well. There has been frequent recurrence of such non-payment, wherein sellers have either suffered a total loss or loss of profit. Even soyabean meal cargoes in the past have met a similar fate. It is immaterial whether the buyer is a private party or an entity run by the government of Iran. The distinctive feature of this trend is that the same Iranian buyers often front new companies as purchasers, while Indian counter-parties conclude rice contracts at seemingly advantageous prices. Once the shipment is made, shipping documents are forwarded usually on DP (documents to be delivered to buyer by the bank against payment) or other terms, but seldom against letters of credit. Iranian buyers dither in making payments through banking channels; shipping documents are allowed to stagnate in Iranian banks or are declared deficient while rice is not lifted from the destination port. With the stalemate on payment and fear of cargo going bad, sellers rush to Iran to settle the matter—resulting in the Iranians forcing discounts or settlement at arbitrary terms.At a time when the government is focusing on farm income growth, it is important that this issue is resolved once and for all. The Agricultural and Processed Food Products Export Development Authority (Apeda) is the India’s controlling body for export of basmati rice. Allowing open and free exports of rice to Iran must be reviewed, and such exports need to be secured with suitable restrictions. Put simply, this could be enforced through a “canalised payment mechanism” via an authorised agency like Apeda. A possible procedural format for this could be as follows: An exporter/seller may sign a contract with an Iranian buyer with the stipulation of 100% advance payment to be made to Apeda within 7-10 days of the contract signing. The date of receipt of payment by Apeda could be treated as the effective date of contract. Apeda then notifies this date to both the seller and buyer; custom may clear cargo offered by seller for shipment after receipt of written acknowledgement from Apeda of payment having been received from Iran. The buyer can nominate its inspection agency with the condition that inspection at loading port being deemed final. Apeda should effect payment to the seller after receipt of shipping documents that require compliance—as agreed in the contract—and issue a “no objection certificate” to the bank of the seller so that foreign exchange earnings accrue to the seller/shipper. In case the seller defaults in making shipment, Apeda should remit the funds back to the buyer at the cost of seller, including any difference in the rate of exchange, and it shall not be liable for any quality/quantity/delayed shipment claims whatsoever. Apeda/the directorate general of foreign trade will also list buyers who have earlier reneged on commitments, as also the brand names of the rice they sell in the Iranian market, and maintain an abeyance list for them. The government can also nominate another trading PSU for the said purpose if Apeda is not willing to undertake this activity. Such a payment security system should be tried for at least two years, and depending upon its efficacy, can be reviewed thereafter. Exports without receipt of full payment retard economic activity. When a suitable security mechanism is introduced and fake importers are filtered out, buyers with respectable credentials and financial capabilities will trade with Indian counter parties. Exports will be truly rewarding when transactions are considered clean and above board and probability of disputes diminish.
Don’t tax branded rice under GST, cut taxes on procurement: Vijay Setia, president, AIREA
Vijay Setia, president, All Indian Rice Exporters Association (AIREA), spoke on critical issues currently impacting the exporters and millers.India’s basmati rice exports have seen fluctuations in fortune in the last couple of years because of factors such as slowing down in shipment to Iran. (Image: Reuters) India’s basmati rice exports have seen fluctuations in fortune in the last couple of years because of factors such as slowing down in shipment to Iran, the country’s biggest export destination for aromatic long-grained rice, and delay in settlement in payments from importers. Vijay Setia, president, All Indian Rice Exporters Association (AIREA), spoke to FE’s Sandip Das on critical issues currently impacting the exporters and millers. Edited excerpts: What are the key issues rice exporters and millers would be facing post GST scenario? Although the GST council has recommended 5% taxes on branded rice while exempting the cereals from taxes, we feel that it would make rice sold to economically weaker section costlier. In the current scenario, the processor has to put several information such as name of the company, date of packing etc. as per requirement of weights and measures department and Food Safety and Standards Authority of India on the rice pack. This would make the rice pack as ‘branded’ thus inviting taxes. The next GST council meeting must address the issue as the government has already promised zero tax on rice under GST regime. States with high local taxes such as mandi fees, arthia (commission agents) commission – 2%, rural development cess (2%) etc. on grain trade mostly prevalent in Punjab, Haryana and others. It should be reduced drastically in the post GST roll out. Because of higher taxation, processors or millers are not willing to set up units in these key producing states. You have been pitching for stopping prevalent practice of documents against acceptance (DA) in non-basmati rice exports while in case of basmati rice shipment, DA has been stopped by the commerce ministry. What are the measures AIREA proposes for exporters to follow so that there are no delays in settlement of payment for rice exported? Because of the prevalence of DA, mostly resorted by small sized basmati rice exporters had become a buyers’ market. Often, consignments are not lifted from the port by importers, and thus, the price has to be renegotiated leading to lower realisation. In a fiercely competitive basmati rice exports trade, small players in order to increase the volume of shipment often send rice consignment to importers who use this unsecure credit to their advantage. We feel that because of the practice of DA, the country’s basmati rice shipment has seen a 29% fall to Rs 22,714 crore in FY16, from a record Rs 29,291 crore reported in FY14. However, the volume of basmati exports has risen from 3.7 million tone (MT) to more than 4 MT in the same period. In FY17, despite lower shipment to Iran, our exports declined to around 5% to Rs 21, 605 crore in comparison to previous fiscal. Thus we has urged government to end the practice of DA in exports of non-basmati rice as well. Basmati rice exporters are currently following two modes – cash against document (invoices are delivered to the importer only against payment) and letter of credit (importers instruct their bank to pay exporters as per the specified conditions mentioned in the original documentary credit). These two methods which are followed widely globally.
Corn and rice had the largest share of non-oil imports into Iran in terms of tonnage in the first month of the current Iranian year (started March 21.
KARACHI: Pakistan is losing the Iranian rice export market of $500 million because commercial banks are reluctant to open letters of credit and issue Form-E even after the lifting of sanctions in January 2016.
Iran was a key importer of Pakistan’s super basmati rice, but the trade came to a virtual halt after the imposition of sanctions on Tehran.
After sanctions and an economic embargo were lifted 14 months back many countries restarted trading with Iran but Pakistan has yet to normalise trade relations with its neighbour. Even during sanctions, there was no food embargo on Iran, and India kept supplying food items including basmati rice to Iran in barter arrangement.
Pakistan, however, ceased trade with Iran, which allowed Indian exporters to capture the Iranian market. Today India exports one million tonnes of Basmati rice worth $1 billion.
Rice Exporters Association of Pakistan (REAP) Chairman Mahmood Moulvi told Dawn that he took up the issue with Finance Minister Ishaq Dar in October who assured him of resolving the problem at the earliest.
Later the matter was taken up with the State Bank of Pakistan (SBP) and the Trade Development Authority of Pakistan (TDAP), Mr Moulvi said.
In a letter on Feb 3, REAP drew the attention of the SBP governor to the issue. The association urged the government to direct the National Bank of Pakistan (NBP) to help restore the country’s share in the Iranian export market if the private banks are reluctant to cooperate. The REAP chairman said there was a time when Pakistan’s basmati rice dominated the Saudi Arabian market. But today, around 80pc of the market has been captured by Indian exporters.
Before the imposition of sanctions, Pakistan exported between 300,000 and 400,000 tonnes of super basmati rice to Iran and earned around $300-$400m per annum. Today we can earn up to $500m, he added.
Delay in resumption of imports by Iran is likely to hinder the recovery in Indian Basmati rice exports, says credit rating agency, ICRA, in its latest update note on Indian Basmati rice industry.New Delhi [India], Feb. 18 (ANI): Delay in resumption of imports by Iran is likely to hinder the recovery in Indian Basmati rice exports, says credit rating agency, ICRA, in its latest update note on Indian Basmati rice industry. ICRA has estimated this as a temporary delay, considering Iran’s insufficient domestic rice production and depleting inventory levels to meet its demand. In ICRA’s view, the price cap of USD 850 per metric tonne (MT) could pose further hurdles for the Basmati rice industry; given that during the current procurement season average Basmati paddy prices have been higher by 20-25 percent. Thus an inflow of orders from Iran, even after the import ban is lifted, remains to be seen. “Iran is a major export destination for Indian Basmati rice and decline in demand from Iran has played a role in the declining realisations of exports from India – from USD 1298/MT in FY2014 to USD 784/MT in FY2017,” said Deepak Jotwani, Assistant VP, ICRA Ltd. Iran is amongst the major importers of Basmati rice from India. However, over the years, the Iranian Government has imposed a ban on import of Basmati rice from time to time, as per the movement in inventory held by its rice traders and also to safeguard the interests of its local farmers. Iran last imposed a ban on import of Basmati rice in July 2016. Given that the ban persisted against industry expectations, the Government of India sent a trade delegation to Iran in January 2017 to resolve the issue. Following this, it was expected that the import ban would be removed soon. While there has been no official notification from Iran, a group of large Basmati rice importers in Iran have recently capped the price of Basmati rice imports at USD 850/MT. In another adverse development for the industry, the US has recently imposed fresh trade sanctions on Iran, which restrains Iran’s use of the US dollar for trade. These two developments have created uncertainty around the resumption of Basmati rice exports to Iran. While Basmati rice is consumed across the globe, West Asian countries continue to account for most of the imports (75 percent of Indian Basmati rice exports in FY2016). Within West Asia, Iran and Saudi Arabia are the two largest buyers, together accounting for 40 to 50 percent of total Basmati rice exports from India. In the past, Iran had been placed under economic sanctions by the USA, Europe and the United Nations, following which the Government of India implemented the rupee payment mechanism through UCO Bank to facilitate trade between India and Iran. This led to a surge in Indian Basmati rice exports to Iran (primarily Pusa 1121 variety) over FY2013 and FY2014 and it emerged as the largest importer (37 percent) of Basmati rice from India. However since then, exports to Iran have largely been on a downward trajectory owing to the import bans imposed. This has reflected in declining export realisations for the last few years. (ANI) This is published unedited from the ANI feed.
Trade sources believe that Iran is looking to use the euro in place of the dollar
Indian Basmati Hopes Fade Over Fixed Import Price
India’s basmati rice exports to Iran, a major destination for the long-grained aromatic rice from the country, is expected to take a big hit after Tehran put upper limits for import and consumer prices of the cereal.
After a sluggish beginning in the first half of the current fiscal, realisation from India’s basmati rice exports is likely to rise in the next couple of months, with Iran likely to resume rice imports shortly.
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