PAKISTAN’S four-year rice deal with Indonesia of 1m tonnes, worth $400m, has all the potential of lifting the flagging morale of the country’s rice exporters.

The agreement, executed by the Trading Corporation of Pakistan (TCP) and the State Logistics Agency (Bulog) of Indonesia, is the first that Jakarta has signed with a non-Southeast Asian country. USAID Rice Outlook, issued on January 14, raises Pakistan’s 2016 rice exports by 0.1m tonnes to a record 4.6m tonnes based on larger sales to Indonesia.

The increase, on the whole, may be 15pc over 2015 exports. In 2016, increased exports from Pakistan, Thailand, and Vietnam are expected to offset weaker shipments from Australia, Cambodia, India and the United States.

The TCP has been quick to finalise first export tender for 15,000 tonnes which includes 5,000 tonnes of basmati and 10,000 tonnes of non-basmati rice, although officials of Bulog are studying technical details of rice stocks in Pakistan. The development has started stabilising domestic rice prices.

India’s move to sell basmati at lower prices had taken a toll on Pakistan’s exports but our exporters remained unwilling to bring down their prices

Another ray of hope comes from neighbouring Iran, which, after the formal end of sanctions against it, has entered the global mainstream. Iran had recently indicated its intention to restart import of rice from Pakistan.

According to the chairman Rice Exporters Association of Pakistan (Reap), Pakistan can sell as much as 1.2m tonnes to Iran but lack of payment mechanism between the two countries was the major hurdle in meeting this objective.

In recent months, India’s move to sell basmati at lower prices had taken a toll on Pakistan’s exports but our exporters remained unwilling to bring down prices as well (for reasons of higher production cost). The low-price strategy has helped India capture a bigger share of the global market, according to the Reap chairman.

Pakistan’s basmati and other varieties of rice were recently quoted at $950 to 1,100/tonne while those of India were priced at $720-850/tonne. As a result, our basmati experienced a drop of 30pc fetching $185m in July-November period as compared to $264m a year ago. But exports of non-basmati rice fared well and earned $503m compared to $474m earlier.

Indonesia’s Vice-President Jusuf Kalla, while explaining the need for importing rice from Pakistan, said recently that the imports are aimed at curbing poverty rate in Indonesia. “Rice price is the deciding factor. If it is not stable, the poverty rate will go up. So the imports prevent the price and poverty rate from rising.”

Indonesia’s ministry of agriculture says there had been higher crop losses during the recent dry season in Java and southern Sulawesi. The drop was also due to an additional 70,000 hectares fall in sowing area to 11.83m ha. Last year’s prolonged El Niño had caused postponement of the rice planting causing reduction in rice stocks for the first quarter of 2016.

While officials expect domestic production to rise again by April, the government preferred the import option to meet the current shortfall and to forestall price hikes. Trade Minister Thomas Lembong says the country plans to import rice from India as well. An agreement to this effect will be signed when he visits India on January 28.

The USAID, which carries out forecasts and their revisions, says there were four major 2016 export revisions in January, all upward. First, Thailand’s export projection was raised by 0.3m tonnes to 10.3m tonnes based on stronger demand from major buyers. Second, Vietnam’s export was raised by 0.2m tonnes to 7.3m tonnes based on continued strong demand from top importers in Southeast Asia.

Third, Pakistan’s export forecast was raised by 0.1m tonnes in the wake of a deal with Indonesia. Fourth, US rice exports were projected at 3.33m tonnes, up 75,000 tonnes from the previous forecast but still 5pc below a year earlier.

India also complains of a decline in rice exports despite forcing Pakistan to suffer a major setback by reducing prices to increase its exports. According to Indian daily, The Hindu, New Delhi’s rice exports for the current financial year are headed for a decline over the previous year because of reduced purchases by large buyers, such as Iran and Nigeria, and drop in sale proceeds.

Latest export trends suggest that total rice shipments, both basmati and non-basmati, have declined by 7.3pc in volumes and 18pc in value terms for the April-November period over the corresponding period last year. Basmati shipments to Iran, the largest buyer of the Indian aromatic rice variety in recent years, dropped by 25pc to 0.39m tonnes during the April-October period.

Published in Dawn, Business & Finance weekly, January 25th, 2016