Lahore, October 14, 2022 (PPI-OT):Rice is among the five major crops of Pakistan and is the second main staple food, after wheat. The segment contributes about 3.5% in agriculture value addition and 0.7% to GDP. Local consumption includes ~95% of basmati rice and ~5% non-basmati. The major players in rice exports include Pakistan, India, Thailand, and Vietnam. Pakistan is in direct competition with India, while Thailand and Vietnamese rice are considered premium. During FY22, rice crop area increased to ~3.4mln Hec (FY21: ~3.3mln Hec), reflecting an increase of ~3%. Rice production increased by ~6%, standing at ~8.9mln MT in FY22 (FY21: ~8.4mln MT).
New higher-yielding hybrid rice varieties, improved agronomic practices, and increased planting area, as farmers shift out of cotton, are factors driving the increased production. Around ~4mln MT of rice is consumed locally, while, the remaining is exported. During FY22, Pakistan exports increased to ~USD 2.5bln (FY21: ~USD 2bln). Going forward, 2022 floods are anticipated to cause ~12% loss to the forecasted rice production for FY23. However, the rupee depreciation is anticipated to compensate for the reduction in export volumes.
The ratings reflect the proficient background of the partners of Awami Agro Commodities (‘Awami Agro’). Growth centric strategy encompasses maximizing returns through expansion in export destinations, which is achieved through entering the West African region leading to a stable revenue stream. Awami Agro’s profitability and in turn, margins improved due to better pricing in the local and international markets. A forecast of decelerated competition on the African side, particularly from Thailand and Vietnam, backs up a stable outlook for Irri/non-basmati export.
However, recent floods in the country may impact the overall production of non-basmati rice leading to increased prices, both locally and internationally. Awami Agro’s financial risk profile has reflected sanguine debt servicing capacity. Obligations are majorly short-term in nature (Export Refinance Facility – Part II), therefore, borrowing costs remain modest. Going forward, rupee depreciation and recovery in prices globally is expected to hamper exports.
The ratings are dependent upon the improvement of business volumes under the current challenging environment. As rice exporters undergo distress, business sustainability emerges as the key challenge. Lack of governance framework remains a concern. Meanwhile, keeping up with a stable financial risk profile is imperative.
For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com