AS the new rice crop starts arriving, local prices are dropping and are already down 30pc from this time last year. And the farmers are hardly enthused as they know they will be paid peanuts for the crop they produced with strenuous labour and at a higher cost.

This scenario at the rice market emerged over the last few years. The country’s rice sector is currently passing through multiple crises and one is at loss to foresee an early recovery.

The reasons include the soaring cost of production because of expensive inputs, lower yielding seeds, unsold stock of 500,000 tonnes from the last two years (valued at more than $1bn), an acute shortage of funds, and the inability of growers, millers and exporters to repay their loans. And the government seems to be indifferent to the situation.

Pakistan’s rice exports have declined 8pc during the first two months of this fiscal year

Besides, after the devolution of agriculture to the provinces, there is much confusion over policy issues. The provinces are reluctant to take initiatives to resolve the rice growers’ problems and expect the centre to step in if the nature of the problems is similar in all the federating units.

Even the much-vaunted Rs341bn agriculture relief package has failed to earn applause from rice growers, who argue that the cash support of Rs5,000 per acre offered to them is insufficient to make up for the losses they have incurred. The losses are estimated to be around Rs30,000 per acre — six times more than the incentive being given to them.

As a result, Pakistan is losing its coveted place in the global rice market. It has become uncompetitive, especially in the case of various basmati varieties, and rice-importing countries have begun turning to India, Thailand and Vietnam. The demand for Pakistani rice is drying up because of its comparatively higher prices.

The Export price of Pakistani basmati, which is much sought-after in Arab countries, is higher by at least $100-150 per tonne when compared to its Indian counterpart. Pakistan’s rice exports have declined 8pc during the first two months of this fiscal year.

About two years ago, when rice exports were worth $2.2bn, the basmati and Irri varieties earned virtually the same amount of foreign exchange. But last year, out of $1.8bn total rice exports, Irri’s share went up to $1.2bn and basmati’s dropped to $600m, indicating its shrinking role.

In terms of quantity, the country has been producing about 2m tonnes of basmati rice, half of which is consumed domestically and the rest exported. But from 2011 onwards, the exports started declining for various reasons.

One reason for basmati’s drop is that since 1997 no new basmati seed has been introduced in the market. Meanwhile, the Indians came up with five new varieties in the last 10 years. Pakistan launched a long grain Basmati 385 variety in the 1980s which was a major success in terms of yield. In the 1990s, another high-yield and longer grain variety, called Super Basmati, was introduced.

But after being in use for around two decades, these varieties have lost much of their potency and their yields have declined drastically. Later, the Indians also introduced Basmati 385 and Super Basmati based on smuggled seeds from Pakistan and started marketing them abroad under the same brands.

However, a more immediate problem faced by the rice industry is the shortage of cash flow. The exporters are not in a position to even paddy from growers, although the crop has already arrived in some areas and is available at extremely low prices.

But the rice millers are the main buyers. As many as 3,000 individuals, including millers, farmers and exporters, have taken Rs100bn worth of loans from banks, according to the Pakistan Rice Mills Association. But they are unable to repay their dues.

To pacify the concerns of the rice industry, Prime Minister Nawaz Sharif announced in a meeting with a delegation of the Rice Exporters Association of Pakistan (Reap) that loans of the industry will be rolled-over until June 2016 to prevent defaults. But the decision has not been implemented yet.

Reap’s other major demands include the withdrawal of the 3.5pc withholding tax on local purchase of rice, repayment of export refinance loans in 360 days instead of the current 180 days, an industry status for rice milling and the reduction of the withholding tax on rice to 0.25pc from the current 1pc.

The group also wants no intervention by the Trading Corporation of Pakistan and Pakistan Agricultural Storage and Services Corporation in the rice trade, in addition to the privatisation of rice research institutes at Kala Shah Kaku and Dokri and the adoption of a sui generis geographical indications law.

At another meeting convened by the State Bank of Pakistan on September 4, the banks agreed to facilitate borrowers by allowing them roll-over facility and releasing their pledged stocks as their quality may deteriorate if kept for long. However, the banks have yet to convey their policy decision to their branches.

During the meeting, it was pointed out that only those borrowers who had genuine difficulties would be accommodated and that it was not a blanket relief.

Published in Dawn, Business & Finance weekly, November 2nd, 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play