INDIA- Rice traders in India claim that the country’s decision to ban non-basmati white rice exports will force them to cancel rice export contracts of around 2 million metric tons, worth US$1 billion on the world market.
On 20th July, India, which accounts for 40% of world rice exports, ordered a halt to its largest rice export category to calm domestic prices, which climbed to multi-year highs in recent weeks as erratic weather threatens production.
“The domestic prices of rice are on an increasing trend,” the Ministry remarked, noting retail prices have increased by 11.5% over 12 months and 3% in the past month.
Anticipating that the government would impose restrictions on rice exports, traders have obtained letters of credit (LCs), or payment guarantees, over the past few days, said a Mumbai-based dealer with a global trade house.
“But the trade wasn’t expecting the government to impose restrictions so soon. It was expecting them to come into effect in August or September. As a result, these traders have no choice but to use the force majeure clause to cancel the contract,” he said.
Force majeure refers to unexpected external circumstances that prevent a party to a contract from meeting its obligations.
Four dealers confirmed that export contracts of around 2 million metric tons of rice, worth US$1 billion, are at risk of being canceled.
The government has explained that the ban would be effective from July 20, and only vessels currently loading would be allowed to export, currently carrying around 200,000 tons of rice, not future shipments backed by LCs.
“Traders typically sign contracts in advance, so the contracts signed for the next few months cannot be executed now,” Nitin Gupta, senior vice president of Olam Agri India Ltd told Reuters.
According to Gupta, India used to sell around 500,000 tons of non-basmati white rice every month before the export ban.
B.V. Krishna Rao, president of the Rice Exporters Association, is beseeching the government to also allow exporters with valid LCs to ship out their cargo, but such an exemption is quite unlikely, according to some government officials.
According to a New-Delhi-based dealer with a global trade house, some exporters bought rice from mills at higher prices as global buyers, in a rush to secure supplies, and will now suffer losses as prices are likely to drop.
Most traders hold that while global prices will likely go up because of India’s export ban, local rates are likely to drop due to the resultant surplus of non-basmati rice in the country.