Why Bangladesh ignores Indian rice

09.08.2017

Bangladesh is experiencing a severe scarcity of rice this year. The government of Bangladesh (GoB) initially arrived at an import demand of 1.2 million tonnes (mt) of rice, but this later escalated to 1.5 mt due to crop losses, caused by heavy flooding in the country—75% requirement of Bangladesh is of parboiled (PB) rice while the rest is of white rice (WR).

After 2011, May 2017 was the first time that GoB sought rice supplies, from Vietnam, Thailand and Cambodia on a G2G (government-to-government) basis by dispatching official delegations and simultaneously issuing import tenders of 50,000 tonnes each. Five tenders have been opened so far. No serious attempt appears to have been made by GoB in raising this with the Indian government. Some shipments of Indian rice—about 1.5 lakh mt—have been made through land/sea routes by private trade. Meanwhile, rice prices in Dhaka have risen from 28 taka/kg to 45 taka/kg, up by 61% in last three months.

India is not only the world’s largest exporter of rice (about 11-12 mt annually  of both basmati and non-basmati), it also enjoys supremacy in the global PB rice trade—and PB is the major demand component of Bangladesh. Logistically, too, India is well-placed, being a neighbouring country for Bangladesh—much closer than Vietnam, Thailand and Cambodia. Thus, cargo from India can reach Bangladesh the very same day of dispatch via the land route or in less than 3-4 days via the sea. India can offer competitive prices on delivered (CIF) basis which other bidders may not be able to match for same quality. It seems that GoB has not done serious reconnaissance, and therefore is buying rice at customised and elevated prices, rather than market prices, under G2G deals signed so far.

Vietnam

The accompanying graphic shows that the G2G deal with Vietnam (annual rice export 5-6 mt) concluded in May 2017. The deal was for 0.2 mt of 5% broken PB rice, which was priced at $470/tonne CIF. This is much higher than the PB rice sourced by GOB against their first tender of May 2017, that was priced at $427.85 /tonne CIF.  It is well-known that Vietnam is an inefficient producer of PB rice.

Likewise 50,000 tonnes of 15% broken WR was bought at $430/t CIF from Vietnam. This was higher by $23/tonne or $406.48/mt CIF. G2G deals are expensive while tendered supplies are substantially cheaper.  Has Vietnam been able to make deliveries faster than those awarded against tenders is unclear. Five tenders amply reveal that PB rice prices in Bangladesh range around $2-$440/t CIF.

Thailand

GoB also had extensive negotiations with its Thai counterpart twice, but no conclusion could be arrived at. According to trade sources, Thais want to do business on an FOB basis, i.e., Thai suppliers do not want to undertake obligations of hiring vessels and for being held liable for claims of quality and quantity at discharge port. GOB perhaps cannot deviate from the established procedure of CIF contracting and thus discussions remained inconclusive. Thais, too, had indicated exorbitant values, even higher than Vietnam’s.

Cambodia

Another MoU has been reportedly signed by GoB with Cambodia (around end-July, early-August) to import 1 mt rice within five years. Pricing of rice, if any, is not in public domain. Long-term understanding in the commodity trade seldom materialises. Cambodia’s official export is about 0.5 mt, while the balance 0.6 mt is cross-border unofficial trade with Vietnam and Thailand. Cambodia is not adept in shipping bulk cargoes and makes shipments through containers. It will be naïve to seek 0.2 mt rice in a year from Cambodia on bulk basis.

India

It is true that while GoB approached GoI in the past (during UPA rule) to augment their supplies through FCI, FCI adopted an inflexible stance of delivering rice on ‘as is, where is’ basis and that too at Indian ports only. This perhaps discouraged GoB from taking any proactive approach for Indian rice in the G2G route.  Also, FCI’s rice export through PSUs is not feasible as this entails additional operations like re-bagging, printing on bags, cleaning, upgrading (from 15% broken to 5% for PB rice and to 15% from 25% for WR), transit losses, etc, which the PSU cannot undertake.

The only way a commercial transaction through PSUs can be structured is by having private partnership with rice millers/traders who have demonstrated in the past the capability to undertake exports. The PSU, too, should have exported rice commercially. GoB should approach GoI through diplomatic channels for such a deal. Market players indicate that some discussions of GoB with Indian PSUs took place, but were then abandoned. It is also feasible that if private trade from India is willing to match tendered price in the current bidding, then such a bidder could be considered for additional 50,000 mt or more.It is not sufficient to have paper contracts or low/high prices—such contracts and prices should translate into physical deliveries of rice for the people of Bangladesh. Rice prices in India are likely to soften in next 60 days when new paddy arrives. Estimates of Indian rice production are 108-110 mt. GoB may need to think hard if Indian grain/agencies can meet its requirements as it is doing for 1.25 billion population in India and for the US and some countries in Asia, Africa and Europe.


financialexpress

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