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Pakistan: when the neighboring country bans rice exports and an unexpected commercial opportunity opens up


Highlights: India banned the export of its non-basmati rice on July 20. The country is the world's largest rice exporter and accounted for almost 40% of world rice trade. Experts believe India's ban will be temporary, but it will give Pakistan a chance to enter the fray and reach its own deals. Pakistan can benefit economically if it satisfies part of the demand that India stops serving. The possibility of floods could truncate its plans to increase production and fears of shortages of its own citizens arise.

The Asian country, the fourth world seller of this cereal, can benefit economically if it satisfies part of the demand that India stops serving, but the possibility of floods could truncate its plans to increase production and fears of shortages of its own citizens arise.

Rukaya Mansoor is a cook in Karachi, the capital of Pakistan, and does not make ends meet even working in two places. Food, he says, has become unaffordable. "I used to think about saving a little of what I earn. But now I have to cut back on food so that the money lasts until the end of the month," he laments. The price of wheat has risen 106 percent in the past year and Mansoor worries that rice, a staple at home, will also rise. The harvest of this cereal was reduced because of the floods of September 2022 that devastated the country and even then prices were high.

The price Mansoor will pay for rice in the coming months will depend not only on the absence of more natural disasters that reduce production, but also on India's decision on July 20 to ban the export of its non-basmati rice. And it is not the first ban it imposes: last year it banned the export of broken rice, a measure that is still in force.

More information

Indian rice export ban fuels fears of inflation and food shortages in the rest of the world

In 2022, India was the world's largest rice exporter and accounted for almost 40% of world rice trade, according to the US Department of Agriculture, so its decision to end exports has caused a significant gap in the global market. Although the country's reasons were purely national – rising local prices and the proximity of elections – the impact of its decision has had repercussions throughout the region. Competitors such as Thailand and Vietnam, the second and third largest rice exporters respectively, are vying to make up for the shortage, as rice prices on the international market have risen to their highest level in more than 2023 years in August 15 (latest data available, from FAO). But while the impact of the ban is being felt everywhere, not everyone is feeling the same way, and Pakistan — which follows Vietnam in rice exports — is currently facing a mix of opportunities and threats.

Ali Hussam Asghar, former president of the Pakistan Rice Exporters Association, says that from the point of view of immediate exports, the move is very good for the country, which has been struggling economically lately and now has the opportunity to significantly increase its GDP. Inflation has reached 30%, its highest level in 50 years and, according to the Human Development Index, Pakistan ranks 161st out of 185 countries.

Most experts believe India's ban will be temporary, but it will give Pakistan a chance to enter the fray and reach its own deals.

Although most experts believe India's ban will be temporary and only last until next year's elections, it is likely to have a more permanent impact on the country's credibility, giving Pakistan a chance to enter the fray and strike its own grain deals.

S. M. Tanveer, Minister of Agriculture of Punjab province, says: "Pakistan now has a great opportunity and we will take advantage of it by introducing hybrid seeds and extra-long grain basmati rice." According to their forecasts, this will improve performance and allow Pakistan to generate the additional production it needs to meet external demand. The Government, he says, is willing to develop the capacities of its farmers and invest in them to make the most of their opportunities, as well as to use African countries as an entry point, as they were the largest consumers of India's basmati and non-basmati rice exports.

Exporting companies are struggling to meet demand that India has stopped serving. Irfan Mukhtar, co-owner of Irfan Noman Brothers, one of Pakistan's largest rice processing and export companies, which invoiced 250,000 metric tons of rice between 2021 and 2022, says: "The average price of rice has become more expensive because supply has decreased and demand has increased, which means Pakistan can increase its exports without making life difficult. because the demand is there." He acknowledges that there were problems with supply last year due to flooding, but stresses: "In general we have seen that the flood waters leave fertile soil behind, so we expect to get a much larger harvest this year that we can take advantage of for exports."

Despite this range of benefits for Pakistan from its neighboring country's actions, some experts, both local and international, worry that the situation is not as simple as it seems. India's decision to ban rice exports is due to the need to protect its local market, as El Niño, a weather phenomenon that causes torrential rains and droughts, has reduced production and pushed up local prices. India is not the only country threatened by El Niño, and some fear Pakistan will also suffer from unseasonal flooding. If this happens while it strives to increase its rice exports with an already limited local supply, there is a good chance that the country will suffer a similar experience to India and that its domestic consumers will find it difficult to afford rice.

A problem of reputation and innovation

"India will return within a year with increased production to meet local and international market demand," said Sajjeed Aslam, regional head of public affairs at the Association of Chartered Certified Accountants (ACCA) Asia Pacific and an investor supporting the companies. Aslam warns that Pakistan should not be confident that it will increase its rice exports just because of India's ban. In his opinion, it must overcome several challenges if it wants to improve its position in the global market. The lack of previous innovation and its comparatively low supply risk placing it far behind Thailand and Vietnam, says the expert. The country's reputation is another drawback, he adds, as there have previously been problems with the quality of the rice it exports. "If you look at the positives, they [Vietnam and Thailand] have an advantage, because they produce a larger volume and their infrastructure to handle that higher volume is already there."

Concern about rising domestic prices is another challenge facing the country. Businessman Mukhtar believes that the price of rice could climb as it has with that of sugar, which is now high due to smuggling and artificial shortages. The increase in the cost of basic foodstuffs, coupled with inflation, could worsen instability in the country, which has already experienced tensions on wheat and rice could recur.

Mukhtar Ali, a laborer from Lahore, the provincial capital of Punjab, had just arrived at a government-subsidized wheat distribution center when a riot broke out. That was last March. "I don't think I can risk going back there or sending my wife. If something happens to us, who will take care of our children?" she says. Now, he adds, he wants you to choose what to buy. While he hoped the government would learn from its mistakes, and believed the grant was a good first step, he feared it was too late. About 10.5 million people will experience "high levels of food insecurity" between April and October 2023, according to the UN. And the situation is projected to worsen between November 2023 and January 2024, when food shortages will affect 11.8 million. The country ranks 99th out of 121 in the 2022 Global Hunger Index.

Aslam worries that if Pakistan's challenges are not properly addressed, the country risks further damaging its reputation in the world rather than getting the benefit it hoped for from the ban. For this reason, the country should address this opportunity in the long term instead of rushing now, when supply chains are struggling. From their perspective, Pakistan should learn from countries that were already prepared to deal with this situation. The introduction of new crop varieties and seeds, he says, is the first step in what should be a thoughtful, longer-term approach to collaboration and growth between government and farmers.

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Source: elparis

All news articles on 2023-10-02

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