Basmati prices unlikely to retreat in the short term

Political instability in Pakistan, poor weather and climate change will continue to put pressure on basmati production, says UK-based Tilda (SUPPLIED)

Recent increases in prices of basmati are unlikely to be reversed in the near future as global demand exceeds supply, according to a leading rice company.

And a number of factors – including political instability in Pakistan, poor weather and harvests and climate change – will continue to put pressure on production, says UK-based Tilda.

Sunil Bhanji, General Manager of Tilda's Dubai office, said the company's Basmati Report 2008 Market Outlook made it clear that prices were unlikely to return to the low levels of the past.

And the recent decision by the Indian Government to impose an export tax of $200 (Dh736) per tonne on basmati is expected to increase prices further.

New Delhi's decision to restrict supplies of non-basmati rice and fix a maximum export price of $1,200 per tonne on basmati have already pushed up prices in the international market.

Bhanji said the price of 5kg of Tilda basmati in the UAE had increased from Dh42 to more than Dh60 in the past year and 1kg packs cost Dh9 to Dh13. Tilda, an international food company selling in more than 40 countries, claims to be the number one basmati brand by value in the UAE and said more than a million people eat Tilda basmati each day in the region.

Basmati can be grown only in the foothills of the Himalayas where the waters from the mountains provide constant irrigation and help to produce the special flavour and aroma of the rice. India is the largest cultivator and the crop is also grown in Pakistan, Nepal and Bangladesh.

The report says many factors are simultaneously pushing up prices to record levels.

"Like all food commodities, basmati is vulnerable to cyclical fluctuations in price," it added.

"When farmers get a good price one year they tend to plant more next season. This has kept prices in balance. However, in 2007, it was a different story.

"After the November 2006 harvest reached record prices at auction, the following March there was no correction with the November 2007 crop. As a result, the wholesale cost of basmati has doubled in the last 12 months and concern over availability of supplies has pushed the price for deliveries of traditional basmati rice to the European Union up 100 per cent."

These price rises are feeding through from millers and importers to consumers in the wholesale and retail trade. The report said there are strong indications that the increases may reflect a new market reality and it is unlikely that there will be a return soon to the low prices of the past.

It added the price went up further as rice exports from Pakistan fell because of bad weather that damaged the country's main port at Karachi. In addition flooding destroyed crops and the country faced political uncertainty. And some farmers switched to biofuels or other types of rice that are easier to grow than basmati. Traditional basmati farmers have been hit by increasing costs - the record oil price has pushed up charges for transporting crops from farms to warehouses and shipping.

Shipping is the main method of transporting dry agricultural products. In the past 18 months the Baltic Dry Index – a measure of freight costs for ships transporting dry goods on the world's main trade routes – has risen by 150 per cent. Limited availability of vessels is also causing problems.

And the steep appreciation of the Indian rupee is another factor that has forced exporters to increase prices.

Tilda says nearly half of the world's 6.6 billion population depends on rice to survive and demand for rice is expected to grow by 50 per cent by 2030.

RS Sheshadri, Director of the company's operations in India, said: "Basmati now accounts for nearly half of the rice consumed in the UK and demand is growing among consumers in Europe, America, the Middle East and India's middle class.