Volatility is often considered the cornerstone of international trading processes. As for agricultural products like Basmati rice, the global market is especially prone to considerable price volatility. With India and Pakistan being the only producers of Basmati rice in the world, the standard deviations in period prices often directly translate towards a significant impact on the global markets. The subsequent instability in the market makes it difficult for Indian Basmati rice exporters to trade the product across strategic markets worldwide. In the long-term, this creates significant difficulties for the economy of the country as well, creating barriers to earning foreign currencies and resulting in increasing trade deficits.
However, volatility has two sides of the same coin. While high prices lead to a particular set of difficulties, low prices come equipped with a specific set of challenges as well. While it is majorly understood that purchasing products at low prices is beneficial, it also creates difficulties for exporters. In the Indian Basmati rice export sector, this directly translates into recurring losses, the long-term impact of which is passed onto the grassroots stakeholders as well. In such scenarios, grassroots stakeholders like farmers have to go through difficulties, affecting their product viability. As Basmati rice gradually becomes one of the most premium agricultural products globally, price dispersion directly translates towards increased competition, reduced orders, pricing instability, and supply chain disruptions.
Price Dispersion of Basmati Rice
Before discussing the price metrics of Basmati rice in detail, it is important to understand that market prices rely on numerous factors, many of which cannot be adjusted. Since Basmati rice is grown in India and Pakistan, exports prioritize ensuring quality and other strategic factors. For instance, if product quality is compromised by any means, it leads to a difficult situation for the exporters. Combined with the price volatility of commodities, Basmati exporters remain incapable of price adjustments owing to risks regarding losing market positioning. Additionally, when Indian exporters increase the prices of the country’s Basmati rice for the international market, buyers turn their attention towards neighboring Pakistan-based exporters — leading to an effect on Indian Exports. Whenever Basmati prices have increased in the international markets in recent years, Indian export houses have been impacted negatively by fewer orders, impacting their seasonal profitability.
While significant price increases hurt Basmati exports from India, partial price hikes have a more favorable outlook. Simultaneously, significant reductions in Basmati prices lead to setbacks for all stakeholders. While consumers can purchase it at reduced prices, grassroots stakeholders like farmers and mandi sellers are faced with difficulties, becoming unable to receive appropriate prices.
General impact
The Basmati rice export ecosystem faces increased difficulties when price volatility occurs. International prices of Basmati rice closely influence purchase prices, which is why Basmati price surge or reductions directly affects both exporters and farmers. Similarly, price hikes negatively impact consumers, limiting their ability to purchase this premium agricultural product. As consumers limit their purchase of Basmati rice in the international markets, the lowered demand also impacts the supply chain, limiting exporters to book orders and farmers with reduced selling prices. The subsequent difficulty in the market creates a negative outlook, an aspect that has the potential to impact consecutive seasons.
These difficulties lead exporters to seek ideal conditions during the sourcing and export, since balanced prices help to enhance order bookings, ensuring fair trade. This scenario also supports the Indian economy significantly, helping to reduce trade deficits and helping earn foreign currencies. Furthermore, ideal conditions also help farmers to receive ideal prices, whereas consumers are empowered to purchase any amount of their liking. For instance, Indian Basmati exporters in FY 23-24 were able to trade 5.24 million tonnes of Basmati rice, a significant increase from 4.56 million tonnes in the previous year.
Future projection
While India produces the vast majority of Basmati rice in the world, it is looking to acquire a GI tag for the same in the coming years. Apart from the GI status, market price stabilization will be a catalyst for maintaining scalability and financial gains for stakeholders across levels. This will also directly translate into balanced prices, enhancing the ability of consumers to make purchases, and leading to the growth of the sector. However, ensuring quality and streamlined logistics will be key concerns, aspects that will drive sectoral growth of all stakeholders — exporters, consumers, and farmers.
