Declining Rice Exports: Is Pakistan Ready for the Impact?

Pakistan's rice export sector has been a significant contributor to the country's economy, especially in recent years. After achieving a remarkable performance of nearly four billion dollars in the last financial year, the outlook for the ongoing FY2024-2025 is concerning. Experts predict a decline of over a billion dollars in rice export earnings, which could create a substantial gap in the already fragile balance of trade.

During the financial year 2023-24, the rice export sector surprised many by nearly doubling its revenue. This boost came at a crucial time when the textile industry, Pakistan's largest sector, was experiencing a downturn. However, this impressive performance was not solely due to local efforts. The previous year's export figures were significantly impacted by the devastating monsoon floods, which led to a collapse in exports. Additionally, global rice prices surged when India, the world's largest producer, imposed a partial export ban ahead of its 2024 general elections.

As a result, global rice prices increased by nearly 50 percent, with coarse rice prices rising from $400 to $600 per metric ton. Pakistan managed to export over 5.25 million metric tons of coarse rice at an average price of $582 per metric ton, making it the third-largest exporter of coarse rice globally, following India and Thailand. However, the good times appear to be coming to an end.

In the past ten months, global coarse rice prices have dropped nearly 20 percent, and further declines are anticipated. Rice production is expected to rise by at least 5 percent in major producing regions, with global production forecasted to increase by over 10 million metric tons compared to last year. India's decision to lift its export ban has also eased the tightness in the world rice trade, with global trade volumes projected to reach a record 56 million metric tons.

Back in Pakistan, the situation has changed dramatically. Rice production, which exceeded 10 million metric tons last year, is now expected to fall below 9.5 million metric tons. Although the area under cultivation remains similar to last year, higher temperatures and extended summer days have negatively impacted productivity, resulting in lower returns for farmers.

The processing industry faces additional challenges as it adjusts to regular income tax obligations and a declining exchange rate, limiting the potential for significant gains compared to last year. While Pakistan's rice exporting firms enjoyed their most profitable year in over a decade, sustaining or increasing export earnings will require targeting volume growth, an area where they have historically struggled compared to the dominant Indian export industry.

To navigate these challenges, Pakistan must explore non-traditional markets and target previously unexplored regions in Africa, Central and South America, and the Far East. However, this strategy may take several years to yield results. In the short term, it is likely that Pakistan's rice exports will experience a revenue loss of at least a billion dollars.

As the situation unfolds, the pressing question remains: Are policymakers prepared to address the potential fallout on the trade balance? The future of Pakistan's rice export sector hangs in the balance, and proactive measures will be essential to mitigate the impact of these challenges.