Once Hormuz reopens, can Pakistan hit India's Basmati feast in the Middle East?
A close-up shot of a giraffe, perhaps to emphasise length, on a packet of Kainat 1121 rice is a common sight in supermarkets across the
A close-up shot of a giraffe, perhaps to emphasise length, on a packet of Kainat 1121 rice is a common sight in supermarkets across the UAE. Shelves away, it is equally common to find packets of Daawat and India Gate. The India-Pakistan rivalry is more than cricket and geopolitics. For decades, Basmati rice has been another area of India-Pakistan rivalry. With India as the biggest producer and exporter of Basmati, Pakistani exporters battle for shelf space and market share in Saudi Arabia, the UAE, Iran, Iraq, Kuwait, Qatar, Oman, the UK and parts of the European Union. FYI, Kainat is essentially a counterfeit to the 1121 Basmati variety developed by Indian agricultural scientist Vijay Pal Singh, who drew inspiration from his fufa ji's checklist of what true Basmati should be. The variety took two decades to develop and helps India generate around Rs 25,000 crore annually. Read Full Story India's biggest Basmati markets are Saudi Arabia, Iran and Iraq, while Pakistan's top three destinations include the UAE, Saudi Arabia and Iran. Clearly, the Middle East (or the West Asian region) is the principal battleground of the India-Pakistan Basmati trade. Now in June, as shipping through the Strait of Hormuz moves towards normalisation after months of disruption, a question is being asked in rice-trading circles. Will Pakistan use the reopening to grab market share from India in the Middle East, the world's biggest imported Basmati-consuming region? The concern among Indian traders is due to Pakistan's duty drawback scheme that allows its exporters to offer Basmati at lower prices. The Hindu BusinessLine reported last week that Indian exporters fear Pakistan's subsidy could depress global price realisations. Pakistan's lower price offering, after months of disruption in trade, might "become a benchmark internationally" and make it harder for Indian sellers to ask for higher prices, said an exporter. The concern is understandable and valid. While India dominates global Basmati exports, accounting for roughly 70-80% of the trade by volume, Pakistan is the only other major exporter of the aromatic grain.
So, can Pakistan really challenge India's Basmati edge as the gates of Hormuz fully reopen? Will Pakistan's subsidy end up hitting Indian Basmati exporters? First, let us have a look at the Pakistani scheme that it is using to help boost the competitiveness of its Basmati exports. PAKISTAN IS PUSHING FOR A BIGGER BASMATI SLICE In January, Pakistan's Ministry of Commerce introduced a Drawback of Local Taxes and Levies (DLTL) scheme for rice exports. Under the order, exporters became eligible for a duty drawback of 9% of the export value on Basmati exports priced at $750 per tonne or above. Lower-value shipments were eligible for a 3% benefit, reported Karachi-based Dawn newspaper on January 27. In simple terms, Pakistan gave exporters a partial refund on taxes they paid earlier, allowing them to sell Basmati abroad at lower prices and compete more aggressively with Indian traders in global markets. Pakistan's Rice Exporters Association argued that the scheme would improve competitiveness and allow exporters to offer lower prices in international markets, Dawn reported. The benefits are set to expire on June 30. So, there's now a short window of around 10 days left. But did Pakistan's Basmati exports see a boom after the scheme was launched in January? DID PAK's BASMATI SUBSIDY TRANSFORM ITS EXPORTS? Not quite. The results so far have been grim as this was the time when the Iran war had started to cast its shadow on key trade routes. A March 17 report in Pakistan's Dawn newspaper showed that rice exports declined by 35.38% in February despite the government's subsidy programme. Official Pakistan Bureau of Statistics data cited by the report showed Basmati exports fell 19.21% in value and nearly 28% in quantity during the month. Exporters speaking to the daily argued that the scheme had failed to address deeper structural problems. A leading exporter blamed high domestic prices and hoarding for eroding Pakistan's competitiveness.
The BriefWire