Casualties of Iran nuclear dealIndia’s near-monopoly in rice and soymeal exports to Iran could break following Tehran’s nuclear deal with the West, which is expected to pave the way for rival suppliers to boost their trading with the oil-rich country.
By: Rajendra Jadhav, Reuters
MUMBAI — India’s near-monopoly in rice and soymeal exports to Iran could break following Tehran’s nuclear deal with the West, which is expected to pave the way for rival suppliers to boost their trading with the oil-rich country.
The landmark deal struck between the Islamic Republic and six world powers on Nov. 24 eases some of the sanctions on trade with Iran that have slashed the OPEC member’s oil exports by more than half and narrowed its options to secure food and agriculture goods to just a few countries.
The sanctions forced India to trim oil purchases from Iran, but it remained a loyal and large customer. In 2012 as sanctions stalled dollar payments, it started settling part of its oil debt in rupees and Iran was using those to buy goods from India.
That trade in rupees gave India an edge over other rice and soymeal suppliers, such as Pakistan and Brazil who do not have such huge debts with Tehran, and quickly the south Asian country established a near-monopoly in exports.
“Rice exports to Iran rose as India had an advantage over other suppliers in payment mechanism,” says R.S. Seshadri, director of Gurgaon-based rice exporter Tilda Riceland. “As sanctions are easing, India has to become much more competitive to retain the share.”
“Pakistan, Thailand lost share, but they can start grabbing that share again once financial institutions start trade with Iran in dollar terms,” he says.
India’s rice exports to Tehran, mainly of the basmati variety, surged 80 percent in the year ended March 31, 2013 from a year ago to 1.1 million metric tons. During the same period, shipments of soymeal jumped nearly four-fold to 886,776 metric tons.
Iran’s difficulties in securing rice and soymeal from other producers because of the sanctions prompted Indian exporters to seek hefty premiums over global prices, sometimes as high as 20 percent. But that premium has to come down now.
“Dollar trade would end India’s monopoly. We can’t take Iran for granted. We need to rationalize our prices,” says a rice exporter based in the northern state of Punjab, who did not want to be named.
Like India, Pakistan was a leading rice supplier to Iran as it had a freight advantage, but because of the Western sanctions its shipments dwindled last year.
But as restrictions are set to ease, “Pakistan can become a major player as it has a logistical advantage over India,” says Seshadri of Tilda Riceland.
Keeping share intact
“Rupee payment helped India in increasing soymeal shipments. Iran is paying higher prices compared to other buyers,” says Rajesh Agarwal, chief co-ordinator at the Soybean Processors’ Association of India (SOPA), a trade body.
Now, Indian exporters “need to align prices in line with international prices,” otherwise India will lose its share, Agarwal says.
But that could prove a difficult task for exporters. The competition among them from the robust Iran demand has doubled prices across India of basmati rice and soybean in the past two years and now local farmers see little reason for discounts.
A lack of supplies domestically has halved soybean crushing and farmers are holding back in the hope that local prices will stay high, says a spokesman with India’s largest soymeal exporter, Ruchi Soya Industries Limited.
“Right now our soybean prices are high, we are not competitive in the world market. Even at this price some farmers are not willing to sell,” SOPA’s Agarwal says.