Is there irrational exuberance surrounding rice exports?
Published on: December 29, 2023.
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Pakistan’s Rice Export Exceeds Expectations, Sets New Records
Pakistan’s rice exports are experiencing a surge, exceeding expectations and setting new records for the industry. According to the Pakistan Bureau of Statistics (PBS), the country exported over 1.7 million metric tons (MMT) of rice during the 5-month period from July to November 2023, generating $1.12 billion in export revenue. This marks the first time that rice export earnings have surpassed the billion-dollar mark during the first half of the fiscal year, raising hopes for a remarkable second half.
Industry analysts predict that the annualized rice export revenue for the entire fiscal year 2023-24 could reach $2.7 billion, surpassing the previous record of $2.5 billion in 2021-22. Further optimism in the industry suggests that export earnings might even reach $3 billion if the 5MMT export target is met.
The current average unit price of rice exports, which is above $575 per metric ton, supports the industry’s optimism. This price level is consistent with industry forecasts and reflects the favorable market conditions. During the 5-month period mentioned above, the average unit price for rice exports exceeded 650 per metric ton, a level not seen since the commodity super cycle in 2008-09 when Pakistan’s rice export earnings surpassed $2 billion for the first time in history.
While basmati rice remains Pakistan’s primary premium brand, the category of coarse rice varieties is leading the way in the current fiscal year. Pakistan exported 1.5MMT of coarse rice during the first 5 months, a remarkable 25 percent increase compared to the 10-year average volume of 1.2MMT. Similarly, the exports of coarse rice in November 2023 reached 0.61MMT, which is 50 percent higher than the 10-year average for the month. It is worth noting that the total rice shipments of 0.66MMT in November 2023 represent the highest-ever monthly export volume in Pakistan’s history.
However, there are potential risks that could impact the industry’s success. The decline in basmati rice prices in the international market by 36 percent from peak levels in January 2023 and the potential resumption of Indian coarse rice exports pose significant challenges for Pakistan’s rice exporters. Increased competition from India and the potential flooding of Indian coarse rice in the global market could have a negative impact on Pakistan’s rice export prospects.
Risks and Challenges
In addition to increased competition, the rice industry in Pakistan is also facing financial risks. The industry has significantly increased short-term credit from banks, with borrowing rising by 15 percent compared to November 2022 and 30 percent compared to October 2023. While it may be justified by the higher unit prices and crop output, it is essential to note that the average borrowing rate has exceeded 21 percent. During the Q4-2021 borrowing boom, the average borrowing cost was under 7 percent.
If commodity prices in the international markets take a sharp turn, the industry could face margin calls against its overdraft lines, especially considering the high borrowing rates. To ensure a successful year for rice exporters, either the borrowing rates must decrease, or the average unit price of exports must maintain its current momentum of around $600 per metric ton.
Despite the potential risks and challenges, Pakistan’s rice export industry is experiencing remarkable growth and reaching new milestones. With the right strategies and market conditions, the industry has the potential to exceed expectations and achieve even greater success in the future.
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