KRBL, LT Foods, Kohinoor Shares Surge After Centre Lifts Minimum Export Price on Basmati Rice

Introduction:

Shares of main rice exporting groups which include LT Foods, Kohinoor Food, and KRBL noticed widespread profits on September 16, following a key regulatory change by way of the Indian government. The Centre’s choice to cast off the Minimum Export Price (MEP) on Basmati rice has led to a remarkable upward thrust of their stock values.

Stock Performance Highlights:

LT Foods and KRBL: Both companies’ shares surged by 6% each.

Kohinoor Foods: Shares hit the upper circuit limit, soaring by 20% in afternoon trading at 2:30 PM.

Context and Impact:

Previously, Basmati rice exports were restricted by a minimum export price (MEP) set at $950 per tonne, reduced from Rs 1200 per tonne in 2024. This restriction had contributed to a decrease in international rice prices, which had fallen by 15-25% due to a slump in orders. The export of Basmati rice dropped by 10% in FY24, amounting to 4.10 million tonnes.

How the Removal of Minimum Export Price (MEP) is Transforming the Basmati Rice Market:

Potential Benefits:

Stabilizing Prices: Analysts suggest that removing the MEP could help stabilize export prices and boost international demand.

Revenue Growth: Companies like KRBL, which reported a 15% decline in revenue for the June quarter due to lower export sales, could see a reversal of fortunes.

  • The removal of export restrictions is expected to counterbalance the higher input costs, which had increased by 9% year-on-year.

Market Dynamics:

India, the world’s leading exporter of Basmati rice, controls 85% of the global market for this premium variety. Despite a 15% growth in export volume in FY24, the overall export volume of Indian rice fell by 27% year-on-year to 16.4 million tonnes. In terms of value, India’s rice exports amounted to $10.4 billion, marking a 7% decrease compared to the previous year.

However, the strong global demand has led to better realizations for Indian rice, even with the reduced export volumes.

Conclusion:

The lifting of the MEP is expected to reinvigorate the Basmati rice export sector, offering a much-needed boost to companies grappling with lower prices and higher costs. This regulatory shift aligns with India’s strategy to maintain its leadership position in the global rice market while ensuring competitive pricing in international markets.

Frequently Asked Questions FAQ:

  1. What is the Minimum Export Price (MEP) for Basmati rice?
    • The Minimum Export Price (MEP) was a regulatory measure that set a floor price for exporting Basmati rice. This meant that Basmati rice could only be exported if the selling price was above this fixed minimum threshold.
  2. Why did the Indian government remove the MEP on Basmati rice?
    • The removal of the MEP was aimed at boosting Basmati rice exports, which had been declining due to reduced international prices and fewer orders. By eliminating the MEP, the government seeks to stabilize prices and increase competitiveness in the global market.
  3. How has the removal of MEP affected Basmati rice exporting companies?
    • Rice exporting companies like LT Foods, Kohinoor Food, and KRBL have seen their stock prices rise significantly following the announcement. The removal of MEP is expected to help these companies boost their export volumes and stabilize prices, thereby potentially improving their revenue and profitability.
  4. What were the export trends for Basmati rice prior to the removal of MEP?
    • Prior to the removal of MEP, Basmati rice exports had fallen by 10% in FY24, with a decline in international prices. Export volumes had decreased to 4.10 million tonnes, reflecting the impact of the previous MEP and global market conditions.
  5. What are the anticipated benefits of removing the MEP for the Basmati rice market?
    • The anticipated benefits include increased competitiveness of Indian Basmati rice in the international market, potential stabilization of export prices, and an uplift in export volumes. This could help offset higher input costs and improve overall market conditions for exporters.
  6. How does the global demand for Basmati rice impact Indian exports?
    • India is the largest exporter of Basmati rice, holding 85% of the global market. Despite a recent fall in export volumes, strong global demand, particularly from the US and the Middle East, has supported better price realizations for Indian Basmati rice.
  7. What was the impact of the MEP on the overall rice export industry in India?
    • The MEP, along with other export restrictions, contributed to a decrease in India’s overall rice export volume, which fell by 27% year-on-year to 16.4 million tonnes in FY24. However, the value of rice exports remained significant at $10.4 billion, with strong global demand helping maintain higher price realizations.
  8. What are the next steps for companies affected by the removal of MEP?
    • Companies will likely focus on leveraging the removal of MEP to boost their export activities, optimize pricing strategies, and manage input costs. They will also monitor market responses and adjust their strategies to capitalize on the improved export environment.
  9. When did the Indian government announce the removal of MEP?
    • The Indian government announced the removal of the MEP over the weekend preceding September 16, 2024.
  10. How can investors and stakeholders monitor the impact of this policy change?
    • Investors and stakeholders can track stock market performance, company earnings reports, and export data to assess the impact of the MEP removal. Monitoring news updates and analyses from industry experts will also provide insights into how this regulatory change is affecting the Basmati rice market and related companies.

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