Regulate basmati acreage to mitigate market risks

Raj Kumar

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INDIA is the largest producer and exporter of basmati rice in the world, with about 70 per cent share in the global production. It exports 40-45 lakh tonnes of basmati annually to almost 150 countries. During 2022-23, the top export destination was Iran, with a share of 21.9%, followed by Saudi Arabia (20.9%), Iraq (8%), UAE (6.9%), Yemen Republic (6.4%), the USA (4.5%), Kuwait (3.4%) and the UK (3.2%).

The area under basmati in Punjab was 1.6 lakh hectares (ha) during 2008-09 and the average post-harvest market price of basmati was Rs 2,660 per quintal, which was a good price at that time. As a result, the area under the crop rose in 2009-10, 2010-11 and 2011-12 to 5.8, 4.5 and 5.6 lakh ha, respectively. On the other hand, due to the increased supply of basmati, its post-harvest prices fell regularly during this period, touching a low of Rs 1,830 per quintal in 2011-12. The decline in prices adversely affected the returns from the crop, and the area correction took place in 2012-13. The reduced production helped in the clearance of past stocks; due to the demand-supply factor, the basmati paddy prices in the domestic markets increased to Rs 2,570 per quintal in 2012-13. The export price of basmati (the average price at which India exported it) increased from Rs 4,862 per quintal in 2011-12 to Rs 5,621 in 2012-13. The area rose again by 1 lakh ha and reached 5.6 lakh ha in 2013-14. Basmati supply remained almost dormant, while its exports were increasing, due to which its export price reached Rs 7,796 per quintal in 2013-14. Consequently, the domestic price of basmati paddy also rose to an all-time high of Rs 3,500 per quintal in the same year. Farmers became overenthusiastic and the acreage touched 8.6 lakh ha in 2014-15, which led to a tremendous increase in production. Due to the increased supply, the basmati stocks in the country accumulated to a large extent in 2014-15, but its export remained almost the same as in the previous year. At the same time, the export prices of basmati rice also started declining, due to which the domestic price of basmati paddy fell to Rs 2,700 per quintal in 2014-15.

Export hiccups

The trajectory of domestic prices of basmati paddy expectedly has shown a positive correlation with its export prices. The export price further went down from

Rs 7,459 per quintal in 2014-15 to Rs 5,615 in 2015-16. Despite the area reduction in 2015-16, the basmati paddy prices in domestic markets crashed due to the accumulation of its carry-over stock. Therefore, the overproduction of basmati, accumulated stocks from previous year’s production and a decline in export prices jointly affected its prices in domestic markets adversely. The price went down to Rs 1,725 per quintal, which hit the profitability of cultivation. Farmers started incurring losses.

The changed scenario led growers to reduce the area under basmati in the state by more than 34 per cent from 7.6 lakh ha in 2015-16 to 5 lakh ha in 2016-17, resulting in a drop in its production by 44 per cent. Consequently, the price of basmati paddy increased by 39 per cent from Rs 1,725 to Rs 2,400 per quintal during the same period. In subsequent years (2016-17, 2017-18 and 2018-19), area under basmati in Punjab remained in the range of 5-5.5 lakh ha and the prices showed less volatility in these years. Decreased production, along with clearance of accumulated stocks, led to an increase in the basmati paddy price to Rs 3,250 per quintal during 2018-19. Farmers again increased its area — 6.3 lakh ha during 2019-20 — which led to a decline in its export as well as domestic prices. Consequently, the area has remained less than

5 lakh ha in subsequent years.

Supply factor

From the trends, it has been observed that the domestic prices of basmati paddy are closely linked to its supply. The tough norms set by the European Commission regarding the maximum residue limit for tricyclazole (a fungicide) in basmati rice may also affect its exports. Further, its domestic consumption is rising at a very slow rate due to low purchasing power of the majority of the Indian population.

Area under cultivation

Encouraged by the handsome returns from basmati cultivation last year, it seems that farmers may substantially increase the area under cultivation during 2023-24, even as the floods have made the situation challenging for them. Such a push may lead to pressure on prices in the domestic market. Acreage under basmati cultivation of 5-6 lakh hectares has emerged as optimal for Punjab. This accounts for 16-19% of the total area under rice in the state.

The basmati footprint is widely distributed in the state and most of the farmers grow both basmati and non-basmati varieties. It would be a good rule of thumb to not increase the area under basmati paddy in a significant measure; maintaining an appropriate proportion of basmati and non-basmati paddy by individual farmers can be a good buffer. Thus, keeping in view the experience of basmati production and its national and international trade scenarios, regulation of the area under cultivation may help farmers get better prices for their produce.

The author is Principal Extension Scientist (Agricultural Economics), Department of Economics and Sociology, PAU, Ludhiana

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