Mumbai, March 16 Basmati rice exports are expected to remain stable despite the West Asia conflict in the current and next financial year, with volume likely to grow by up to 2 per cent from the 6.06 million tonnes (MT) recorded in 2024-25, Crisil Ratings said in a report on Monday.
While exports to Iran, a key market, are likely to be affected, higher demand from other regional markets, such as Saudi Arabia, Iraq, the United Arab Emirates, and Yemen, will offset the decline, the report added.
India's basmati rice export volume is expected to remain steady this fiscal and the next, with growth of up to 2 per cent over the 6.06 MT export volume logged last fiscal, despite the ongoing West Asia conflict, the report said.
The working capital cycle of basmati rice exporters is likely to stretch due to logistical hurdles, such as inadequate ship availability, longer transit times, and payment-related challenges, resulting in a rise in working capital debt.
However, the exporters are likely to pass on any increase in freight and insurance costs to customers, which will help protect their operating profitability.
This will help exporters keep their balance sheets healthy, despite the increase in debt levels and maintaining stable credit profiles.
India is the largest producer and exporter of basmati rice, accounting for close to 85 per cent of the global basmati rice volume.
Exports constitute nearly two-thirds of India's annual basmati rice sales by volume, making the industry highly vulnerable to geopolitics.
Iran is one of the largest importers of Indian Basmati rice, accounting for 14 per cent of the variety's export volumes last fiscal, while other West Asian countries together accounted for 70-72 per cent.
The ongoing conflict has disrupted supply chains and could impact exports, especially to Iran.
If the logistical challenges persist for around a month, basmati rice trade volume might be impacted by 3.5-3.7 lakh tonnes. However, demand from other import-dependent countries in the region where basmati rice is a staple will help offset this impact.
"Disruptions in the Strait of Hormuz, a critical transit route for rice exports to the Middle East, could lead to blockage of goods and delayed payments from customers in the near term. Nevertheless, Indian basmati rice export volume is likely to remain resilient due to 5-6 per cent higher demand expected from other Middle Eastern countries, such as Saudi Arabia, Iraq, the United Arab Emirates, and Yemen, which account for 55-60 per cent of the export volume," Crisil Ratings Director Nitin Kansal said.
Next fiscal, basmati rice realization is seen as steady due to resilience in demand and near-stagnant production of basmati paddy in key producing areas following excess rains, the report stated.
Basmati rice exporters are also exploring alternative routes to avoid the Strait of Hormuz to ensure supply to the West Asia region.
"The alternative routes may lead to an increase in transit times. This, in turn, could lengthen the working capital cycle of basmati rice exporters, leading to a 10-15 per cent increase in working capital requirements, for which they will need to raise additional debt. However, healthy balance sheets of Crisil-rated companies will keep their credit profiles stable," Crisil Ratings Associate Director Smriti Singh said.