US tariff crisis puts Punjab basmati exporters, growers in peril

Time of India

a day ago

Chandigarh: The new US policy imposing a 50% import tariff on Indian basmati rice presents a challenge for both exporters and its growers in Punjab. This duty hike is set to make India's premium grain uncompetitive against rival Pakistan in a key global market, adding to the pressure on growers already affected by falling domestic prices.
If basmati growers are compelled to switch to regular paddy, it could undermine the state's crop diversification efforts, which are essential to conserving groundwater resources.
While the US market may be smaller in volume than West Asia, it is crucial to the profitability of premium aromatic varieties. This punitive tariff is set to directly benefit India's arch-rival, as Pakistan's lower tariff rate will likely shift a greater share of the US market to their exports, which currently account for 50% compared to India's 19%.
The new tariffs come at a time when basmati prices are already in free fall. The cost of popular varieties like 1121 dropped from Rs 4,500 per quintal in 2022-23 to Rs 3,500 in 2023-24, with expectations of a further decline. Basmati exporters fear this price slump could make farmers abandon basmati in favour of regular paddy, which is protected by a minimum support price (MSP) of over Rs 2,400 per quintal. This shift could undermine the state's crop diversification efforts, which were put in place to address concerns over groundwater depletion.
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Sanampreet Singh, a progressive farmer from Fazilka, said a dip in basmati prices last season already made many growers switch back to regular paddy this year. He said basmati prices are uncertain and depend on exporters, unlike the assured procurement on minimum support price (MSP) for regular paddy, adding that if prices do not recover this season, more basmati growers would switch to paddy. Popular basmati varieties in the state like 1509, 1121, and 1718 cover over 80% of the 6.8 lakh hectares area under basmati, but have been fetching falling prices.
According to Ranjit Singh Jossan, vice-president of the Basmati Rice Millers and Exporters Association, the new duty could cause Indian exports to the US to drop by 50%-80%. "US accounts for 8%-10% of India's basmati exports. New tariffs will make Indian basmati costlier by $400 per tonne, while Pakistani basmati will remain competitive. This will particularly hurt small and medium exporters who are already struggling with thin margins and unsold stock," he said.
The dual threats of foreign trade disruptions and domestic supply issues could prove to be a litmus test yet for Punjab's basmati success story, said Jossan.
According to Ashok Sethi, director of the Punjab Rice Millers and Exporters' Association, a good monsoon this time is expected to yield a bumper basmati crop, which typically drives prices down. This supply increase, coupled with a negative market sentiment surrounding the high US tariff, will likely cause a decline.
As a result, both exporters and growers are expected to be affected, with exporters becoming more cautious in their buying.
Despite the US market's relatively small volume of 2.34-3 lakh metric tonnes annually, valued between $350 million and $418 million, it remains a crucial destination for Indian basmati due to its niche clientele, he said.
Punjab's basmati processing capacity nearly doubled in the last two years, but its local production is not keeping pace.
Millers have historically relied on surplus basmati from Uttar Pradesh and Madhya Pradesh to operate at full capacity. However, these states are now rapidly building their own milling infrastructure, which could cut off Punjab's raw material supply.
In 2022-23, Punjab's basmati processing capacity stood at around 25 LMT per annum, with 80 rice mills operating. By 2024-25, the capacity went up to 45 LMT, with over 200 rice mills now operating across the state. The rapid expansion was fuelled by strong global demand for basmati and high price realisation in the export market, especially in premium destinations like the US, Europe, and the Middle East.
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