Rice Industry of Pakistan

September 9, 2017 Business

(II)RICE INDUSTRY According to UN’s ITSY , rice is the second largest commodity exported out of Pakistan where the food, beverages, and tobacco (HS 2002 sections 0+1), of which it is a part, accounted for 16. 8% of Pakistan’s total exported goods in 2008 (ITSY, 2008). In the same year, UK imported $56,207. 0 million worth of food, beverages, and tobacco with an average share of 8. 9% of total imports. Rice falls in division 10 according to HS 2002 (Appendix A13) and 04 under SITC rev. 3 under cereals and cereal preparations .

Its prominent position as second highest export from Pakistan was deemed important for its inclusion in the study. The main variety of rice imported from Pakistan is Basmati rice which grows in the valleys of Punjab in the foothills of the Himalayas, and Irri rice which grows in the province of Sindh. These varieties of rice are unique to the area and cannot be found anywhere in the world. Punjab territory spans in both India and Pakistan and that is why these two countries are the only sources of basmati rice in the world.

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The aroma of the cooked basmati rice, its non-sticky texture, and the pleasant unique taste are what make basmati rice special and different from the other varieties of rice. It is harvested as paddy rice with husk on the outside that is de-husked in the country of origin because it is about 40% of the weight and has virtually no value. The husk is used predominantly as a heat source in Pakistan. Most of it goes either into boilers at the rice mills for steam for drying or into the brick kilns for drying bricks.

Once that is taken off the source what is left is the brown rice underneath that has the brown on the outside. Some mills in the UK do not buy milled white rice from Pakistan because import of brown basmati rice to Europe is duty-free as long as a certificate of authenticity of basmati from Pakistan authorities is presented. However, if it was milled in Pakistan and imported as final product into Europe then a duty of €145, about a ? 100 per tonne is imposed (2007 figures). Since the milling costs in UK are less than ? 00 per tonne, basmati rice is imported as brown, husked rice and then cleaned and polished to the final product in the mills in UK. This tax was levied from the late eighties and has resulted in the emergence of a brown rice milling industry in UK. For other types of rice, for example the long grain rice or the irri variety, there is a duty of €65 per tonne on the finished rice. Most exporters of rice buy their product from the farmers who sell them in mandis or markets. The rice are de-husked and exported as brown rice. Small mills that do not have direct access to importers sell to agents who export them abroad.

Importers in the UK either buy directly from the importers or from the mills in the Punjab region of Pakistan. Milled white rice under Pakistani brand names is mostly bought by distributors in the UK who supply to ethnic stores, mostly in areas which are predominantly inhabited by immigrants of Pakistani origin. Between 1974 & 1987 the monopoly for export of rice was with the RECP which is a government organisation. In 1987, government allowed the private sector to once again enter the market for export of rice from Pakistan.

Since rice is a food commodity in which Pakistan has an exportable surplus and will continue to have so in the near future, there is little prospect that the government will put a ban on its exports or try to regulate its exports. In 2008 Pakistan had a bumper rice crop which was fortunate for the exporters because at that time international commodity prices were on the rise and Pakistani exporters were able to make good profits. Record prices in 2008 encouraged the farmers to increase production in 2009 when there was sudden glut in international markets.

The government tried to intervene in the market by fixing a support price which was higher than international prices. The rice exporters refused to buy and the government also did not eventually enter the market to buy at the floor price as it was short of funds. Eventually international prices improved and farmers sold at prices lower than that fixed by the government and exports restarted. Rice is water thirsty crop and requires large quantities of water. Due to a water shortage since 2007 the crop has suffered, the government is trying to encourage farmers to grow varieties which require less water but has not been successful as yet.

Rice yields are lower in Pakistan as compared to the region but the farmers, most of whom are crop sharers, do not want to invest in the more costly GM seeds which they will not be able to use the next year. Farmers on their own have been experimenting with Chinese GM seeds with mixed results. Most of the export business is in the hands of the traders and millers. Some of the larger exporters have gone into milling also and have set up state-of-the-art plants and machinery. In the EU and the US gene certificates are becoming important to ensure that the rice sent is what is claimed.

Basmati rice, for example, must be 95% of basmati variety and must have a certificate of authenticity from a credible agency. At present, no laboratory in Pakistan has the facility to do DNA testing which is internationally acceptable and can provide international certification, therefore, buyers insist on having tests done in the West, which is an added expense. Additionally, DNA testing is done at the customs in the UK by selecting random samples from the containers and the cost of this testing is built into the price of imported product. There are presently no major rice brands from Pakistan in the mainstream supermarkets in UK.

This means that Pakistani brands are usually sold under foreign brands and the major profits are made by the middlemen. Ethnic stores, however, carry Pakistani brands where a niche has been developed and some brands have created credibility and enjoy a comfortable customer loyalty. In 2009, Tesco developed what it calls ‘ethnic isles’ where some of the Pakistani rice brands can be seen together with other ethnic products. These brands have good recognition in Pakistan and the industry hopes that their inclusion in a mainstream store in the UK will help promote their penetration into the rest of the superstores.

Basmati rice has been present in the ethnic stores in the UK for a considerably long period of time but its popularity was helped in 2006 when the American long grain rice had to be removed from the markets due to a GM contamination. For safety reasons it was decided to keep American long grain rice off the shelves for the next six years. Although the African long grain rice was the alternative present in the stores, it did not immediately take over and customers tried the basmati long grain variety as well. This helped build an image among the British as a special variety with its specific aroma, taste, and texture.

This is apparent from the increase in the number of brands that Tesco carries for basmati rice. Most Of the UK importers of rice from Pakistan are distributors who distribute the rice within the ethnic community, or millers who have their own milling facilities where imported husked rice is polished and readied for stores. These mills supply rice in various forms, from plain-graded varieties to parboiled and cooked rice. APPENDIX A13: BILATERAL TRADE BETWEEN PAKISTAN AND UNITED KINGDOM IN 2008; PRODUCT: 10 – CEREALS; IN US$ THOUSANDS Source: (ITC, 2008) Sources: ITC calculations based on COMTRADE statistics.


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