By BR Research

Pakistan exported 4.29 million metric tons of rice worth USD2.29 billion in FY2026. Applying last financial year’s destination mix to the export base suggests that around 36.5 percent, or USD836 million, remains exposed to the ongoing disruption in the Strait of Hormuz, the Gulf of Aden or the longer route around the Cape of Good Hope.

Roughly USD390 million of this trade involves destinations directly dependent on Hormuz or Bab el-Mandeb, while another USD356 million is linked to the UK and continental Europe. Oman accounts for approximately USD92 million and offers an alternative route, although its ports cannot absorb unlimited diversion without congestion, additional handling and inland transport costs.

The industry was already moving backwards before the latest shipping shock. Rice exports declined from 5.82 million metric tons worth USD3.35 billion in FY2025 to 4.29 million metric tons worth USD2.29 billion in FY2026, a 26.2 percent fall in volume and a 31.7 percent decline in receipts.

Average realisation fell from USD576 to USD534 per metric ton. The USD1.06 billion loss in annual export earnings was therefore driven by both fewer shipments and weaker prices.

Almost the entire volume decline came from non-basmati rice. Its exports fell by 30.2 percent to 3.50 million metric tons, while receipts collapsed by 42.6 percent to USD1.45 billion.

Average non-basmati realisation declined by 17.8 percent, from USD504 to USD414 per metric ton. Basmati volumes fell by only 1.7 percent to 795,000 metric tons, while receipts increased by 1.5 percent to USD843 million and average realisation rose from USD1,028 to USD1,061 per metric ton.

This divergence determines which part of the industry can survive another increase in shipping costs. An additional USD2,500 of freight, insurance and handling on a 25-metric-ton container adds USD100 per metric ton, equal to 24 percent of current non-basmati realisation but less than 10 percent of basmati realisation.

At USD150 per metric ton, the increase consumes more than 36 percent of non-basmati export value. The shipping route may remain technically available, yet the cargo becomes commercially pointless once war-risk premiums, additional transit time and inland transport are included.

The immediate export risk is sizeable. Under a six-month disruption, approximately USD195 million of direct chokepoint trade and USD178 million of European trade would fall within the affected period.

If half of the direct-route shipments are cancelled or deferred, and European exports decline by 10 percent, the initial receipt shortfall reaches approximately USD115 million. Price discounting on rice displaced towards Africa and Asia could take the six-month loss towards USD115–190 million, while a severe full-year scenario places roughly USD334 million at risk.

The more dangerous transmission occurs away from the ports. Pakistan exported 1.53 million fewer metric tons of rice in FY2026 than in FY2025, leaving a substantially larger quantity to be absorbed by domestic mills, warehouses and commodity mandis.

At a milling recovery of 67 percent, the export shortfall is equivalent to approximately 2.28 million metric tons of paddy. This additional pressure matters most during the October–December harvest window, when arrivals peak and farmers have the least capacity to withhold produce.

The arithmetic is unpleasant. A Rs500 decline per 40kg, equivalent to only Rs12.50 per kilogram, reduces the gross value of 2.28 million metric tons of paddy by approximately Rs28.5 billion.

A Rs1,000 decline per 40kg removes nearly Rs57 billion. These calculations apply the price decline only to the paddy equivalent of the export shortfall; once weaker mandi prices become the benchmark for the wider crop, the rural income exposure becomes considerably larger.

Farmers do not treat rice receipts as idle savings. The proceeds repay commission agents and input dealers, finance household consumption and fund wheat sowing, which overlaps with rice harvesting and marketing.

Lower farm-gate prices therefore weaken recoveries across the informal credit chain, reduce purchases of fertiliser and certified seed, and squeeze transporters, labourers and rural retailers. What begins as an export problem ends up draining liquidity from the wider rural economy.

The FY2026 shortfall captures the weak absorption of the October–December 2025 crop. Continued disruption now risks carrying residual stocks into the next harvest, giving millers every reason to bid cautiously for new paddy and farmers every reason to sell before prices fall further.

That is why intervention has become urgent. The purpose is not to preserve exporter margins regardless of cost, but to prevent a maritime disruption from turning into an inventory overhang, a farm-gate price shock and eventually a rural credit problem.

The predictable policy response would be a freight subsidy. Applying a subsidy of USD50 per metric ton to FY2026 rice exports would cost approximately $215 million, while USD100 per metric ton would cost USD429 million.

That money would be paid on every qualifying shipment, including exports that would have taken place without support. It would also flow disproportionately towards firms already large enough to secure vessels and navigate reimbursement procedures, which is how temporary relief quietly acquires a permanent seat on the gravy train.

Pakistan already has an institution designed for the actual financial constraint. EXIM Bank of Pakistan was established under the Export-Import Bank of Pakistan Act, 2022, as the country’s state-backed export credit agency.

Trade credit insurance will not reduce freight rates or protect a vessel against physical damage. It can cover defined buyer-default, delayed-payment and eligible political or transfer risks, allowing banks to finance export receivables whose collection period has become uncertain.

EXIM should establish a six-month Rice Export Continuity Window for verified shipments to affected Gulf, Red Sea and European markets. A USD200 million pilot portfolio with 80 percent cover would create USD160 million of insured exposure, while exporters retained the remaining 20 percent.

At an illustrative premium of 2–3 percent, a complete fiscal premium buy-down would cost USD3.2–4.8 million. Even a 5 percent claim rate would produce gross claims of USD8 million, while a 10 percent claim rate would produce USD16 million before recoveries, against USD215 million for the lower freight-subsidy option.

The real test is whether insurance unlocks liquidity before the damage is done. If commercial banks advanced 80 percent against the USD160 million insured portfolio, exporters could obtain up to USD128 million to procure paddy, carry inventory and accommodate longer payment cycles.

Zero or nominal premiums for the first cohort would be defensible if the facility remained temporary, capped and properly underwritten. An export credit agency that waits for trade risk to disappear before insuring it is little more than expensive letterhead.

Exporters should retain at least 10–20 percent of each exposure, with firm, buyer and destination limits to prevent concentration. Speculative inventory, commodity-price losses, related-party transactions and exporter non-performance should remain outside the window.

Operational measures are still required, including capacity towards Oman and the UAE’s eastern ports, alternative inland routes and contracts permitting changes in discharge location. Insurance cannot move cargo, but it can stop viable orders from collapsing because exporters and their banks cannot carry another 60 or 90 days of uncertainty.

Pakistan can spend USD215–429 million reimbursing freight and hope the chokepoints reopen before the subsidy bill becomes politically untouchable. Or it can use a small, concessional fiscal allocation to activate trade credit insurance, mobilise bank finance and stop a shipping crisis from becoming a rural income crisis.

Published Date: September 23, 2026