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Red Sea strikes alarm basmati exporters, govt advises caution

Dec 26, 2023 08:28 AM IST

Shippers of Indian basmati rice are concerned about the Middle East conflict after two cargo vessels were struck by drones in the Red Sea. This could force suppliers to change routes and increase costs. The Red Sea route is important for India's sea trade to Africa, the Middle East, and the EU. Additionally, the surge in basmati rice exports due to higher demand from the Middle East has raised prices for farmers. India has banned shipments of other rice varieties to cool domestic prices, so increased basmati exports could help narrow the agricultural trade gap.

The Middle East conflict has alarmed shippers of basmati rice, India’s top agricultural export commodity, after two cargo vessels with Indian crew were struck by drones in the Red Sea by suspected Houthi rebels. Some suppliers said an escalation of attacks could force them to change route.

Red Sea strikes alarm basmati exporters, govt advises caution
Red Sea strikes alarm basmati exporters, govt advises caution

Following the emerging risks, officials from the commerce ministry last week apprised a delegation of basmati exporters of the situation arising out of attacks by Iran-leaning Houthi rebels of Yemen on ships in the Red Sea that could impact trade. Houthis have pledged support for Hamas in Gaza.

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The Red Sea route is a busy corridor for the bulk of India’s sea trade to Africa, the Middle East and the European Union. “India is monitoring the situation and any heightened risks will be flagged to all stakeholders. Alternate routes could be utilized,” an official said, requesting anonymity.

The geopolitical risks come amid a robust surge in shipments of freshly harvested Indian basmati rice due to higher demand from Middle Eastern buyers this season, which has raised prices for farmers by up to 15%.

Brisk exports of the aromatic long grain have been helped by India’s lowering of the minimum export price from $1,200 a tonne to $950 a tonne last month. Non-availability of most other long grain white rice varieties due to a ban on export by India has also stoked demand for basmati.

Better volumes of basmati export could help narrow India’s agricultural trade gap this year because the country has banned shipments of white rice, wheat and onion to cool domestic prices. Consumer inflation rose to 5.55% in November, driven by food prices, snapping a three-month declining trend. The country exported nearly $3.38 billion worth of basmati till November 15.

“The trade situation is normal barring a few incidents and commerce is happening normally. But we foresee trade risks if hostilities escalate,” another official said, requesting not to be identified.

Exporters could be forced to switch to new routes, which could raise shipments costs, depending on how much longer the supply lines are and how higher insurance costs, said Kedar Kohli of ORM Overseas, a basmati trader.

India exports over 4 million tonnes of basmati. Iran, Iraq, Saudi Arabia, the United Arab Emirates and the US are among the top buyers.

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  • ABOUT THE AUTHOR
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    Zia Haq reports on public policy, economy and agriculture. Particularly interested in development economics and growth theories.

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