Rice Oryza Sativa L. a member of the grass family,
along with wheat and corn, is one of the three crops on which
the human species largely subsists. Rice is now one of the
most important crops at the global level, as it is used as a
staple food in most countries of the world and will continue
to be for the foreseeable feature. Rice is intimately involved
in the culture as well as the food ways and economy of many
societies. Indica type rice feeds more than two billion
people, predominantly in developing countries. In the coming
30 years, the world will require 70% more rice than that it
to conservative estimates, 800 million tons of rice will have
to be grown with considerate reduction in the input of
agrochemical under sustainable conditions. It has been
estimated that half the world's population subsists wholly or
partially on rice. Ninety percent of the world crop is grown
and consumed in Asia. American consumption, although
increasing, is still only about 11 kg per person annually, as
compared with 90–181 kg per person in parts of Asia.
World Production and Trade
According to FAO’s latest forecast, world production in
2004/05 may have reached 606 MT of paddy rice (405 in white
equivalent), against 585 MT in the last year up by 3.5%. As a
result of this increased production, world rice trade is
estimated at 25.9 MT, against 27 MT in 2004. Production grew
mainly in China, where prices recovery and large utilization
of hybrid varieties have contributed to boost supply. In the
rest of the world, production also raised due to the expansion
of rice areas and higher yields. For 2005/06, it is expected
another increase, to 615 MT. Nevertheless, supply is still not
enough when compared to consumption needs (414 MT in white
equivalent). It will lead to a new fall in world stocks, from
97 MT in the year before to 95 MT, the lowest level since
Economic Importance of Rice for Pakistan
Rice is the second most important crop which brings economic
prosperity of the growers as well as earns billions of rupees
through its export for country. Pakistani fine rice commonly
known as Basmati is world famous and enjoys monopoly in the
international market, due to its quality characteristics,
strong aroma, slender and long kernel, gelatinization,
temperature and high degree of grain elongation on cooking.
However, the grain yield of basmati rice varieties is very
low. In order to remain in the International market, we have
to further improve the quality as well as yield of basmati
varieties. Rice plays a pivotal role in the agro-based and
occupies a prominent position in agricultural economy of
Rice is a high valued cash crop and is also a major export
item. It accounts for 5.7 percent of the total value added in
agriculture and 1.3 percent to GDP. Production of rice during
2004-05 is provisionally estimated at 4991 thousand tons,
which is 2.9 percent higher than last year. Rice was
cultivated on an area of 2503 thousand hectares, showing an
increase of 1.7 percent over last year. The higher production
is due to favourable weather condition.
Area, Production and Yield of Rice
Year Area Production Yield
and Yield of Rice
P: Provisional. (July-March) Source: Ministry of
Food, Agriculture and Livestock.
Federal Bureau of Statistics.
Major Producing Areas
Major producing areas include Gujranwala, Hafizabad,
Sheikhupura, Sialkot, Jhang & Okara of Punjab and Larkana,
Jacobabad, Shikarpur, Badin, Dadu & Thatta districts of Sindh.
In Pakistan, rice is mainly grown in the Sindh and Punjab. The
Sindh is specialized in producing the Long grain white rice
IRRI-6 and IRRI-9, while Punjab is producing world class
Basmati rice among IRRI-9 and other varieties. Punjab is the
biggest producer of rice in the country and contributes 58 per
cent to national production while the provinces of Sindh,
Balochistan and NWFP to 29, 3 and 10 per cent, respectively.
Some of the important varieties grown in the country are Super
Basmati, Kernel Basmati, Basmati 385, IRRI-6, IRRI-9, KS-282,
DR-82 and DR-83. All rice is irrigated and mainly
transplanted. On an average, each household in Pakistan spends
about 3.8 percent of its total food expenditure on rice and
rice flour. It is the second staple food and contributes more
than 2 million tons to Pakistan's national food requirement.
Like India, Pakistan exports both high-quality Basmati rice
which sells at a substantial premium in high-income markets as
well as intermediate and low quality non-aromatic long grain
milled rice to developing countries, mostly in East Africa
where it competes with China and Vietnam, and in South Asia.
Pakistan’s Basmati rice typically sells at a lower price than
India’s Basmati. For all rice, Sub-Saharan Africa,
Afghanistan, Bangladesh, Indonesia, Middle East and the EU are
leading export markets for Pakistan.
Rice exports reached record US$ 932.3 million, showing an
extraordinary increase of US$ 297.8 million (46.9 percent)
during FY 05 despite a fall in unit values. Export values of
basmati rice and other varieties stood at US$ 439 and US$
Benefits of Rice Futures Contract
Futures Contract of Rice would provide hedging
platform for the following market participants.
Manufacturers of Value Added Products
Rice futures price is important to farmers, millers,
exporters. All groups can use futures price or price discovery
as information to direct their businesses or to manage their
In addition, exporters can use futures exchange as hedging
tools to manage their risk. They can buy rice futures contract
and sell futures contract before the first delivery notice day
called "offset", then the exporters take profit or loss from
contract price difference. If they buy high and sell higher,
they will gain from buying futures contract. In contrast, they
buy high and sell low, they will lose from buying futures
In cash market, exporters can buy or sell rice futures
contract in which they may take profit or lose as well.
Fortunately, they gain in futures exchange but lose in cash
market. And the gain covers their losses, so they will take
Benefits to Industry from Futures trading.
Hedging the price risk associated with
futures contractual commitments.
Spaced out purchases possible rather than large cash purchases
and its storage.
Efficient price discovery prevents seasonal price volatility.
Greater flexibility, certainty and transparency in procuring
commodities would aid bank lending.
Facilitate informed lending.
Hedged positions of producers and processors would reduce the
risk of default faced by banks. * Lending for agricultural
sector would go up with greater transparency in pricing and
Commodity Exchanges to act as distribution network to retail
agri-finance from Banks to rural households.
Provide trading limit finance to Traders in commodities
Benefits to Exchange Member
Access to a huge potential market much
greater than the securities and cash market in commodities.
Robust, scalable, state-of-art technology deployment.
Member can trade in multiple commodities from a single point,
on real time basis.
Traders would be trained to be Rural Advisors and Commodity
Specialists and through them multiple rural needs would be
met, like bank credit, information dissemination, etc.