Saudi importers have threatened lawsuits against Indian rice exporters for default on commitments and have started negotiating with Pakistan and Thailand for its rice requirements.
Domestic exporters have been faltering on commitments following imposition of export duty on basmati rice by the Indian government, a top industry official said.
With a view to discourage exports, the Indian government imposed an export duty of Rs8,000 a ton on basmati rice exports. It has also lowered the minimum export price (MEP) on export from $1,200 to $1,000 a ton.
The Riyadh Chamber of Commerce and Industry, a major importer of basmati rice, has communicated to the Indian government to reconsider $220 a ton duty on basmati rice export.
Abdallah A. BalSharaf, chairman, Food Items Committee, in a letter to the Indian Ambassador in Riyadh, said:”All the Indian exporters have informed that they are not in a position to absorb this additional burden because they had as such concluded the contracts at very thin margins. They have intimated in clear terms that this additional burden of $220 per ton must be borne by the Saudi importers, failing which they will not be able to honor the contract.”
A copy of the letter has also been sent to the Union Ministers P. Chidambaram, Kamal Nath and Sharad Pawar.
The Chamber said the circumstances were so critical that neither the Saudi market nor the Indian exporter could absorb the duty. The only recourse left for Saudi importers was to resort to the litigation route, which would be to nobody’s benefit.
The serious fall-out, the communication said, would be from next-year when the Saudi importers would have no option but to look out for other supply sources.
Saudi Arabia imports about 6.25 lakh tons of basmati annually, out of which India ships around 5.75 lakh tonns.
The first lot of about three lakh tons import was concluded by the Saudi buyers at an average price of $1,350 a ton for parboiled and $1,450 for raw basmati. By December end 2007, Indian basmati was being quoted at $1,550-$1,600 a ton. The Saudi Arabia government stepped in and announced a subsidy of $266 a ton on import of basmati rice.
Between 2000 and 2006 basmati prices ruled around $600-$700 a ton. However, the prices started climbing and in October 2007, they went up to $1,000-$2,000 a ton.
The current contracts were concluded by the Saudi buyers with Indian exporters in October 2007. Indian exporters say they are not in a position to absorb this addition duty because of their thin margins. The same is the case with Saudi buyers, who are seeking government support, because the market cannot absorb the high prices.
“Some rice importers may exploit the situation and file lawsuits against exporters. We are sending wrong signals as India will lose its credibility in the international market,” All India Rice Exporters Association’s President Vijay Setia, said.