NEW DELHI–Strong demand from Iran has pushed up the price of India’s premier basmati rice to all-time highs, with this purchasing reinforcing the sub-continent’s recent emergence as the world’s top rice exporter, trade executives said Tuesday.
The two countries introduced a payment mechanism last June to skirt Western sanctions against Iran which involves exchanging Iranian oil for a range of Indian goods, including rice, soymeal and pharmaceuticals.
News of the increasing rice sales follow a finance ministry announcement last week that New Delhi has approved financial support for local insurers who underwrite crude-oil shipments from Iran, risking the displeasure of the U.S. and European Union which want to maintain pressure on Iran over its nuclear program.
A 20-billion-rupee ($364 million) fund approved April 4 provides reinsurance to local refineries which process Iranian crude, a senior finance ministry official and an executive from a state-run refinery said last week.
Indian importers of Iranian oil deposit their payments in rupees into an Indian bank, while rice traders and other exporters withdraw their rupee payments from Iran once their shipments have been received.
“India is probably the only viable supplier [of rice] to Iran because of the rupee payment mechanism,” said R.S. Seshadri, a director at Tilda Riceland Private Ltd., a leading basmati rice exporter.
The barter system will allow exports to Iran to rise by 20% in the financial year that began April 1, to around 1.2 million metric tons, Mr. Seshadri said, estimating that Iran is now buying around 130,000 tons of Indian basmati rice each month.
Iran accounts for about one-third of India’s basmati rice shipments in volume terms, while basmati rice accounts for about 20% of India’s total rice exports in value. Mr. Seshadri forecasts that India’s basmati rice exports this financial year may grow by 6.5% to around 3.2 million tons.
Prices of Pusa 1121, a popular basmati variety, have increased by 140% over the past year to around $1,500 per ton currently.
Indian rice exporters have resolved a problem over payment delays with Iranian buyers which were happening a couple of months back, trade executives said.
Vijay Setia, a leading rice industry executive, said he sees no hurdles in coming months to the trade as Iran has sufficient funds in Indian banks for the exchange to continue.
As of late February, Iran has the rupee equivalent of $4 billion in India’s state-owned UCO Bank, where India deposits money to pay for crude oil, according to Federation of Indian Export Organisations President Rafeeque Ahmed.
India imported 9.69 million metric tons, or 71 million barrels, of crude oil from Iran in the nine months ended December 2012 at a cost of 248.14 billion rupees ($4.5 billion), the government said in February.
This strong demand means that India is on track to retain its position as the world’s top rice exporter ahead of Thailand, although last year’s drought has affected output of the grain in some regions. Demand for the Indian rice variety is also strong from Saudi Arabia and Iraq, traders said.
The bullish trend in basmati rice prices is also due to slight supply shortages in the domestic market, said Gurnam Arora, joint managing director of Kohinoor Foods Ltd., a prominent basmati rice exporter.
He said the higher prices haves not dented buying sentiment.
Prices of unhusked basmati rice varieties have shot up to around $675 a ton from $422 in the same period last year.
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