Pakistan's Rice Exports: A Cause for Concern?

Despite optimistic expectations for the fiscal year 2023-24, the first quarter (Q1) of July to September has seen Pakistan's rice exports fall short of making a significant impact. According to the monthly trade report published by the Pakistan Bureau of Statistics, rice exports during Q1-FY24 have declined by 18% compared to the same period in the previous year. This decline has resulted in export earnings remaining virtually unchanged compared to Q1-FY23.

While a decrease in quantity demanded at higher prices might seem logical, it's important to consider that this decline follows the catastrophic 2022-23 flood year, which caused a 25% drop in rice exports due to extensive damage to the rice crop caused by monsoon floods. Various estimates suggest that between two to four million metric tons of rice crop were affected. The Economic Survey of Pakistan projected a 21% decline in national rice production, while the US Department of Agriculture estimated a 42% drop in the country's output compared to the previous season.

The fact that Pakistan's export performance worsened despite the exceptionally low base of the previous year suggests factors beyond just price increases at play. It's noteworthy that, on average, unit prices of exports during Q1-FY24 are only 10% higher than in Q1-FY23, which doesn't seem significant enough to justify a drop in export volume. In fact, the volume exported is the lowest in five years, a period when Pakistan's total production was 25% lower than in recent years.

Does this mean the claims of FY24 being a year of record export earnings were mere illusions? Not necessarily. Rice cultivation in most of the Indus basin occurs from May to June, coinciding with pre-monsoon conditions and high temperatures across the irrigated plains. While rice is a shorter duration crop in many areas compared to substitutes like cotton, the complete harvest cycle can extend up to October-November.

This means that by the time the new crop reaches the market, having gone through various processes such as mandis, shelling, milling, and finally export buying, the fiscal year is already well into its second half. Historically, the majority of rice export volume appears in official statistics during the second half of the fiscal year, with a roughly averaged ratio of 40:60 for H1 to H2 over the last 10 years. Interestingly, a higher share of export volume during H1 often correlates with lower annual exports, reflecting weaker performance during H2 due to poor crop output.

Picture Courtesy: Business Recorder

Many market participants consider Q1 of the fiscal year (Jul – Sep) as the last quarter of the rice marketing year or season. This means that many rice exporters are still offloading last season's inventory during these months. In this context, the underwhelming performance of rice exports during Jul – Sep 2023 should be viewed as expected, given the historical trend.

However, the concern arises from the unit prices achieved during this period. According to the World Bank's commodity price tracker, global rice prices for various varieties have increased by an average of 36% to 54% during Jul – Sep 2023 compared to the same period in the previous year. In contrast, Pakistani exporters have only seen a 10% increase in their average unit prices during the same period. Notably, while average export unit prices of basmati variety increased by 14%, non-basmati variety saw a rise of only 3%, equivalent to $15 per metric ton. In contrast, non-basmati rice varieties in global markets experienced price increases ranging from $130 to $190 per metric ton!

If Pakistani rice has indeed been exported at a substantial discount to global prices, it represents a missed opportunity for local players who could have realized significant inventory gains by selling last year's carryover inventory at current prices.

The substantial disparity between global and Pakistani coarse (non-basmati) rice prices should raise concerns, especially if this trend continues into the subsequent months of the fiscal year, coinciding with the arrival of the new crop. Vigilance is required to prevent under-invoicing.