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The huge carry-forward stocks from last season would diminish the millers' appetite to procure fresh paddy in the coming season. Last year, farmers got up to Rs 24/kg for Pusa-1121. This time millers may not pay more than Rs 17-18, though this is still more than the likely official procurement price of Rs 11.90/kg for regular ‘Grade A' non-basmati paddy.
Uncertainty over payments from Iran hits basmati trade Exporters rue buyer-centric terms of trade
New Delhi, June 5:
Ahead of plantings for the new season, basmati rice exporters are caught in a payments crisis, with over Rs 2,000 crore worth of receivables piled up against shipments to Iran and Iraq.
During 2010-11 (April-March), India's basmati exports were placed at around 25 lakh tonnes (lt), of which some 9 lt went to Iran and another 1.5 lt to Iraq. Against the 10 lt-plus rice shipped out to the two West Asian countries, payments on 40-50 per cent are estimated to be overdue. At an average price of $1,100 a tonne, the value of this money – which, given the thin margins in the trade, ought to have been remitted into exporters' accounts by now – would be upwards of Rs 2,200 crore.
Most exporters Business Line spoke to admitted to the industry's problems, though they were quick to deny any impact on their own firms' fortunes (Data on company-wise basmati exports shown in the Table is based on officially registered contracts and not on payments against actual shipments).
Genesis The story of the current crisis goes back to 2006-07 and 2007-08, when companies, led by KRBL Ltd, began exporting the premium Pusa-1121 basmati in a big way to Iran.
Being a variety heavily in demand, buyers typically forked out a 20 per cent advance for cargoes contracted by them. The balance 80 per cent was paid on receiving the faxed export documents (bill of lading, invoice, phytosanitary certificate, etc) from Indian shippers. Once the payment was made, the exporters sent the originals, against which the buyers took physical delivery at Dubai or Bandar-Abbas port. But from the 2008-09 season, some exporters stopped insisting on the 20 per cent advance.
They would send the original documents straight after shipping to the importer's bank, which would be instructed to release the material once the payment was remitted.
Race to the bottom The real problems arose when exporters graduated to the next stage of selling on credit and handing over documents to importers (or their agents) for taking delivery against post-dated cheques. The credit was initially extended for 60 days, then for 90 days, to the point where the industry was practically financing the importers – who were even demanding “haircuts” on the originally contracted prices.
“It was one-way deal with no provision to benefit from upside if world prices rose in the intervening period. In short, the buyers were being presented a put option,” said a trade source.
The importers are now totally calling the shots, with many exporters having to ship out fresh material just to be paid for a previous consignment, he added.
Some of the bigger firms have stopped doing business with Iran, even at the expense of their topline being hit. “I recently got an offer to supply 50 containers for $ 1,120 a tonne on 90-days credit. I felt the money will not come when he refused my counter-offer at $ 1,060 against immediate cash payment”, revealed a leading exporter.
He blamed the present situation to the “unhealthy competition” among exporters to grab business. The spoilers included new entrants from Punjab's Jalalabad-Moga belt, who were previously milling ordinary par-boiled parmal rice for the Food Corporation of India.
“In 2008 and 2009, the joke used to be that anyone you meet in these towns, barring barbers, is exporting Pusa-1121 to Iran,” the exporter remarked.
Monsoon races into Mumbai despite still-born ‘low'
Thiruvananthapuram, June 5:
The south-west monsoon continued to make rapid progress despite of a ‘still-born' low-pressure area in the Arabian Sea.
Seasonal rains have raced into Mumbai on Sunday, at least five days ahead of schedule, even as global models debated the dynamics of the fast-unfolding events.
To its credit, India Meteorological Department (IMD) had withdrawn the watch for formation of a ‘low' the very next day it was mounted a few days back.
The European Centre for Medium-Range Weather Forecasting, which went as far as to predict a full-blown tropical cyclone in the region, has since backtracked.
But the Roundy-Albany tracker continues to maintain a watch for a ‘low'/depression close to southwest Gujarat coast and entering northwest India during the course of the week.
The Central Weather Bureau of Taiwan too has stuck to its forecast of such a system forming in the region. But it put the system on a track to southern coast of Pakistan.
Some other models still do expect the formation of a system close to the Konkan-Mumbai coast but seem to have marked down expected strength and intensity.
But it is a fact that there is massive convective (cloud-building) activity happening in the region with convective clouds milling around and triggering precipitation.
The offshore trough and the long-standing upper air cyclonic combination have proved a potent combine to sweep in the flows across the Equator.
Various models had anticipated that the cyclonic circulation would descend to lower levels to set up a ‘low' that might spin up a stronger system.