THE row between the government agencies procuring rice and the Rice Exporters Association of Pakistan (Reap) is getting ugly for no apparent reason. The rice export is going on smoothly, so is the domestic procurement, and the Reap has been on board in all official decisions – from procurement to support price – till it unilaterally decided to walk out of the process.

If the Reap’s advertisement campaign is something to go by, the rice exporters want official agencies to stop procuring rice, supervise a price crash of 30 to 40 per cent, which it says has been increased artificially, and let the free market (cartels) decide the price and farmers’ fate.

Interestingly, the Reap campaign does not include any plan as to how it wants to deal with the marketable surplus that official agencies are trying to procure. In the absence of any credible alternative plan, except for a huge price crash, the government would not, and should not risk getting out of market and leave it to traders.

According to dissident voices within Reap, the association has been taken over by traders and investors because of compulsory provincial rotation of chairmanship. The traders always cherish a depressed prices for quick gains. Whereas exporters, supposed to run the association, have to take a long-term view of the market realities, and adjust as they have to remain in the business.

Instead of launching an anti-farmers and anti-government campaign, the Reap should have come up with a plan to absorb marketable surplus this year and avoid price crash. On the contrary, the focus has been on quick windfalls at the cost of farmers which no political government can afford. Thus, the Reap is banging its head against the wall.

The current problem of Reap started when an additional one million tons of rice hit the market. Given the huge increase in acreage because of exceptional high price last year, every one, including the government and exporters, knew that size of crop would increase substantially. The estimates turned out to be accurate, and the country, according to official estimates, had 6.3 million tons of production against 5.5 million tons last year.The exporters, however, put the final yield even higher at around seven million tons.

With the domestic requirement of just over two million tons, the surplus stood at around five million tons. The situation became more difficult for the exporters’ because of carry over stocks of last year, a depressed international rice market, high interest rates and financial crunch in the world financial markets. They went slow on buying, creating a slump and a glut in the local market.

The government swung into action. It convened a meeting of the Rice Board (comprising farmers and exporters) to thrash out a new strategy. Interestingly, the Reap agreed to paddy price (basmati) at Rs1,500 per 40kg and Rs700 per 40kg for non-basmati. However, the price fell to an average price of Rs1,200 per 40kg when the fresh crop arrived with exporters slow on buying.

The government asked the Pakistan Agriculture Services and Storage Corporation (Passco) to start procuring paddy at the official rate. The inexperienced Passco failed to find a role for itself in the market as it set an unrealistic condition of 12 per cent moisture for procurement, which normally is 25 per cent at the time of seasonal sale. The farmers slowed the harvesting due to price crash. The slow harvesting affected wheat sowing. Concerned over the situation, the Punjab government forced the Passco to withdraw condition of 12 per cent moisture and start procuring rice instead of paddy from the mills which purchase paddy from farmers at the rate of Rs1,500 per 40kg.

A summary was sent to the federal government, which was approved within three days and the procurement process started.

At this stage, the Reap came up with the suggestion that Passco should procure rice from its members rather than millers. The farmers opposed the idea, saying that official effort was aimed at stabilising the paddy price, which would directly benefit the farmers. If the Reap wanted to sell rice, it should go to the ministry of agriculture, food and livestock (Minfal) and argue its case there. The Minfal may involve the Trading Corporation of Pakistan (TCP) to purchase rice from exporters but should leave Passco for farmers and paddy.

The government sided with farmers, and the exporters decided to walkout and launch an anti-farmers and anti-government campaign.Otherwise, they were on board right from the beginning of the season. Even now, the international rice price hovers around $1,200 per ton, which comes to around Rs3,700 per 40kg in domestic market – leaving a healthy margin of Rs700 per 40kg at the official price. Given the average paddy price, which has been around Rs1,200 per 40kg, the 40kg rice cost Pakistani exporters Rs2,700 – a margin of Rs1,000 per 40kg.

The export for the first six months of current financial year has touched $1.2 billion against $1.8 billion for the last entire year. Pakistani exporters still enjoy over $120 per ton competitive edge over their Indian competitors who have to sell at around $1,320 because of minimum export price (MEP) restriction imposed by Indian government but withdrawn by Pakistan on exporters’ pressure.

Almost 40 per cent price differential in the value of Indian and Pakistani currencies adds to profit of local exporters. Crying foul by rice exporters hardly makes sense. Farmers are an important stakeholder in the rice business, making profit at their cost may bring short-term gain to some traders but it does not augur well for long-term business prospects.