Getting right price for rice

IN India, basmati rice has emerged as a significant commodity on the export list and become a good source of export earnings among agricultural commodities. Presently, India is the largest producer of basmati rice with about 70 per cent share in the global production. The Pusa-1121 variety contributes the largest share to the Indian export of basmati rice. During 2017-18, the share of Iran in the export of Indian basmati rice was about 22 per cent, followed by Saudi Arabia (19.53 per cent), Iraq (10.6 per cent), UAE (10.58 per cent), UK (4.45 per cent), Yemen Republic (4.13 per cent) and Kuwait (4.11 per cent).

In 2008-09, the area under basmati in Punjab was 3.4 lakh hectares and the average post-harvest market price of basmati paddy was Rs 2,660 per quintal, which was a good price at that time. As a result, the area under the crop got a boost over the next three years (2009-10, 2010-11 and 2011-12), touching 5.58 lakh hectares in 2011-12. 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. The area correction took place in 2012-13 and 1 lakh hectares less got planted. The export prices increased to Rs 5,621 per quintal in 2012-13. The domestic basmati paddy prices also gained significantly by about Rs 650 per quintal in the same year. From 2011-12 to 2013-14, basmati supply remained almost dormant while the exports were increasing. The export price increased from Rs 4,862 per quintal in 2011-12 to Rs 7,796 per quintal in 2013-14. The reduced production helped in the clearance of past stocks; due to the demand-supply factor, the basmati paddy prices in the domestic market increased to Rs 2,570 per quintal in 2012-13. The area shot up again by 1 lakh hectares and reached 5.59 lakh hectares in 2013-14; on the domestic front, the prices of basmati paddy rose to the all-time high of Rs 3,500 per quintal in the same period. Farmers became overenthusiastic and the acreage sowed touched the all-time high of 8.62 lakh hectares in 2014-15, which led to a tremendous increase in its production. Due to the increased supply, the basmati rice 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 international prices of basmati rice also started declining. As a result, domestic prices of basmati paddy fell from Rs 3,500 per quintal in the previous year to Rs 2,700 per quintal in 2014-15.

The domestic price of basmati paddy showed a positive correlation with the export prices. The latter went down further from Rs 7,459 per quintal in 2014-15 to Rs 5,615 in 2015-16. Because this commodity is amenable to storage, the effect of acreage beyond just the next year can be seen. Therefore, despite the area reduction by 1 lakh hectares in 2015-16, the basmati paddy prices in the domestic market crashed. Overproduction of basmati rice, accumulated stocks from last year’s production and decline in export prices jointly hit its prices in the domestic market. The prices touched the lowest point of Rs 1,725 per quintal, which drastically affected the profitability of its cultivation. Basmati cultivation in Punjab became unviable as compared to non-basmati paddy. Farmers started incurring losses, causing unrest among them. 

The changed basmati scenario led growers to reduce the area under basmati in the state by more than 34 per cent — from 7.63 lakh hectares in 2014-15 to 5.02 lakh hectares in 2015-16, resulting in a drop in its production by 44 per cent. Consequently, the prices 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 stable between 5 and 5.5 lakh hectares and the prices showed less volatility in these years. Decreased basmati rice production, along with clearance of its accumulated stocks, led to an increase in basmati paddy prices to Rs 2,400 per quintal, Rs 2,800 and Rs 3,250 in 2016-17, 2017-18 and 2018-19, respectively.

Past trends show that the global export of basmati from India may remain around 40 lakh tonnes in the near future. The tough norms set by the European Commission by bringing down the maximum residue limit (MRL) level for tricyclazole (a fungicide) in basmati rice may also affect its exports to Europe. Further, due to the low purchasing power of a majority of the Indian population, its domestic consumption is rising at a very slow rate. From the basmati and non-basmati seed sale reports as well as interaction with farmers, it seems that farmers may increase area under basmati during 2019-20 because they have got high prices for their produce during 2018-19, when the average price was Rs 3,250 per quintal. Under these circumstances, a big increase in area under basmati cultivation may cause the problem of market clearance and lead to downward pressure on its prices in the domestic market. It has been observed that acreage under basmati cultivation of 5 to 5.5 lakh hectares emerges as optimal for Punjab at present. This constitutes about 16 to 18 per cent of the total rice area in the state. 

The basmati footprint is fairly widely distributed in Punjab and most of the farmers grow basmati as well as non-basmati varieties. It would be a good rule of thumb to not increase the area under basmati paddy in a significant measure in 2019-20 over the previous year and maintain appropriate proportion of basmati and non-basmati paddy by individual farmers as a good buffer. Thus, in view of the past experience of basmati production and its market clearance as well as its national and international trade scenario, a check on the area under basmati cultivation during the current year may help the farmers in realising better prices.

The authors are on the faculty of Department of Economics and Sociology, PAU, Ludhiana

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