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 requires today. According 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 1982.
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 Pakistan.
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
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$ 493.6 respectively.
Benefits of Rice Futures Contract
Futures Contract of Rice would provide hedging platform for the following market participants.
? Progressive Growers
? 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 risk.
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 contract.
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 profit.
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 storage.
Commodity Exchanges to act as distribution network to retail agri-finance from Banks to rural households.
Provide trading limit finance to Traders in commodities Exchanges.
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.