White on rice

Karachi: Pakistan, a rice producing country, is under severe duress due to its plan to initiate barter trade of rice against the liquefied petroleum gas (LPG) with Iran, which is facing several sanctions from the US and other international donors due to its stand on nuclear issue.

The donor agencies are also putting pressure on Pakistan to control its twin deficits, and for that purpose, the government plans to initiate barter trade with the neighbouring country, a move that would benefit both countries.

Immediately after the Pakistan government official announced the plan, a debate kicked off whether the plan is doable or just another “good news”.

To calculate the surplus availability, Pakistan is the world’s 10th largest producer of rice. The exports make up more than 8 per cent of the world’s total rice trade.

According to the Rice Exporters Association of Pakistan (REAP), Pakistan exported 3.6 million tonnes of rice worth $2.04 billion in 2021.

Zulfikar Thaver of SZT Corporation said: “Iran is a major rice consumer. We have surplus produce and can provide all the rice they want.”

According to the International Grains Council (IGC), t6he rice production in 2021/22 is forecast at 7.8 million tonnes, up from 7.6 million tonnes a year ago. Pakistan’s per capita rice consumption of 18kg/annum is among the lowest in the region. Unlike many other Asian countries, rice is not yet considered to be a mainstay of the Pakistani diet.

To recall, Adviser to the Prime Minister on Trade and Commerce Razak Dawood had said that the barter trade would begin within a month or two. “We will export rice to Iran and import LPG from there. It is purely a barter deal. Iran has agreed, in principle, and we have signed a memorandum of understanding.”

The guidelines involving Customs procedures, transportation and settlement are still awaited. More importantly, the response of the US to this barter trade between his ally; and his ally’s close ally, is still a question mark.

Ahsan Mehanti, Director at Arif Habib Commodities, said barter trade with Iran didn’t seem close, since the neighbouring country was faced with rigorous international sanctions.

“Having said that, we cannot rule out the possibility of a barter trade with Iran”.

Mehanti said the staff level agreement with the International Monetary Fund (IMF) has already been reached, while the Financial Action Task Force (FATF) has confirmed in October that there was no discussion on blacklisting Pakistan. “I don’t think this should be a problem.”

Talking about the benefits it materialised, Mehanti said that this would be a support to the trade balance.

“Pakistan imports around $600 million worth of LPG/annum, excluding the last two years; wherein, the demand was low due to the lockdown; LPG against rice would provide $600 million worth of respite to the trade balance.”

Although there have been concerns that the United States might object to this deal with Iran, analysts believe this would not be an issue.

After all, a mammoth quantity of fuel products, petrochemicals and numerous other goods from Iran find their way to the local markets through undocumented channels.

A senior Customs official said the Federal Board of Revenue (FBR) has launched a crackdown on smuggling with western neighbours, but still the influx of goods was going on.

After the US imposed sanctions on Iran in 2013 to cut oil exports, the smuggling of Iranian petroleum products has become an entrenched part of its ailing economy.

The smuggling of fuel and goods has been going for decades through the 900km porous border that separates Balochistan from Iran. Smuggling is the primary source of income for the hundreds and thousands of Baloch families living across the desolated area, as there aren’t any other noticeable employment/business opportunities in Balochistan.

The Iranian petroleum products and other goods have been continuously smuggled from Balochistan to other parts of Pakistan. It is not clear how much Iranian fuel is smuggled into Pakistan, but a 2015 estimate suggested it could be approximately 700,000 litres daily. Last year, the Iranian officials estimated smuggling of up to 11 million litres of fuel to their oil-rich country each day.

Pakistan’s rice production has increased by more than 30 per cent over the last 10 years, making it the second most valuable domestic crop after wheat.

The country’s export growth has also lost steam, as volume exported has been trapped under the four million tonnes/annum for much of the last decade. In FY11, the country exported over 75 per cent of its total rice production; the same has fallen to just half in recent years.

Thaver said that there was a time when a lot of rice was exported. “But India captured our markets for being cheaper. This deal will bode well for the country and [the] rice growers.”

“A key reason in rising production is the wide and continued adaptation of hybrid long grain non-basmati varieties,” IGC noted.

“The shift of farmers away from cultivating cotton to cultivating rice during the Kharif/summer season is also significant and is attributable to the multiple problems, e.g., low quality seed, pest problems, etc, and lower profitability associated with Pakistan’s cotton crop.”

REAP chairman Rahim Janu said that Iran was the traditional buyer of Pakistani rice and super basmati was very popular there.

“Iran is around a $900 million rice export market but the trade was much less than the potential due to sanctions. This barter deal with Iran is our longstanding demand, and once the trade begins, there would be substantial increase in the commodity exports.”

Janu said that Pakistan was already indirectly exporting rice to Iran via Dubai. “This routing arrangement is working for the exporters, but the payments are often delayed. Trading LPG for rice is a win-win deal for both countries.”

Rice was not Pakistan’s staple produce. “There is sufficient quantity of the commodity available, and its supply to the neighbouring country would not affect other export markets.”

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