Global Rice News

In our exploration of economic growth patterns, it’s evident that high interest rates paint a vivid picture of growth in economies persistently deprived of credit. Case in point, FY22 witnessed the economy recording its most significant GDP growth rate of 6.1 percent in 17 years (rebased 2015-16). During the same period, Kibor averaged around 9.5 percent, and the country’s goods export reached an all-time high of $32 billion. However, when Kibor increased to 17.5 percent the next year, GDP expanded by a paltry 0.3 percent, and goods exports dropped to $28 billion.

[Rice exports](https://www.hasrice.com) weren’t spared by this downturn. It is now clear that the 2022-23 marketing year (Oct 22 – Sep 23) will end with a lower banking credit outstanding than that at the beginning of the year, in nominal terms. This has transpired amidst average borrowing rates hitting 20 percent during the year. Consequently, negative credit growth was experienced for the first time in August 2022, representing the retirement of industry debt in the past 11 months. Not surprisingly, export earnings for the industry decreased by $364 million during FY23, following record earnings of $2.5 billion in the preceding year.

However, the fall in [rice exports from Pakistan](https://www.hasrice.com) during the recently concluded 2023 marketing year wasn’t merely due to the business cycle. While it’s true that [Pakistan rice exports](https://www.pakistanrice.com) reduced significantly by a quarter (by volume) during this period, many attribute this mainly to monsoon floods in 2022. The floods resulted in a loss of close to 2 million metric tons of rice output.

Despite a tax crunch, the industry’s lower performance cannot be solely pegged on it. A closer look at credit growth at the start of the marketing year paints a more informative picture. During the year’s first quarter (Oct – Dec 2022), the rice processing industry recorded nearly the same credit growth rate as the previous year. The industry’s working capital financing surged similarly, regardless of the lower availability of stock in the local market due to flood damage.

Interestingly, the retirement of debt (or loan settlement) during the year accelerated significantly. Short-term credit to the industry fell considerably by about one-third in just six months. Consequently, while the industry’s credit turnover rate increased, the same cannot be said about the export performance.

The rice industry is entering a new marketing season with interest rates near historic peaks and no more concessionary finance windows present. With commodity prices at 10-year record highs, leveraging inventory building won’t come cheap for the industry, especially if [rice prices](https://www.hasrice.com/pakistan-rice-prices/) drop due to a possible lifting of India’s export ban. The scenario may leave the industry grappling with massive inventory losses and increased debt servicing rates.

The looming question is whether the rice industry, with limited access to cheap credit, can still pull off record exports during this challenging period. The country could potentially expect a [rice bumper crop](https://www.hasrice.com), but FY24 might not yield a smooth sail for the industry.

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