India rice exports to shrink as investors eye $3.5bn branded market – report

India's rice exports could fall by as much as 50% within five years, while the branded rice market could reach $3.5bn and spur private equity investment in the sector, says a Rabobank report.

India’s rice exports could fall by as much as 50 percent within just five years, while the branded rice market could reach $3.5 billion (€3.1bn) and spur private equity investment in the sector, says a Rabobank report.

India was the world’s largest rice exporter in 2014, shipping 10.25 million tonnes and contributing $4.8 billion to the Indian economy. However Rabobank says increasing domestic consumption combined with stagnant production could see exports fall to between 5 and 6 million tones by 2020. The author of the report says it will be a “challenge” to reverse the trend.

“It will be challenging to increase the area under rice cultivation in future. The key will be to increase the yield per hectare,” Shiva Mugdil, senior analyst at Rabobank told Agri Investor. “Usage of hybrid variants requiring less water and other inputs will be critical. However penetration of these variants due to their high cost is still low. Focusing on improving penetration of these variants can help revive production growth.”

In response to shrinking exports, Rabobank says companies “will shift to the domestic branded business,” with branded rice able to seek roughly a 33 percent premium above loose rice at the retail level according to the report.

Mugdil says private investment will be critical to the growth of the domestic branded rice market, which Rabobank forecasts will grow from $2.4 billion today to $3.5 billion by 2017.

“The branded rice segment will require good quality rice with an access to consumer retail market. This calls for investments across the rice value chain. Companies will need to (improve) upstream linkages to the farmers, create storage infrastructure, create and upgrade processing infrastructure, create distribution networks to reach consumers and develop brands to get the consumer pull,” Mugdil told Agri Investor.

The report says the nine largest rice companies in India have recorded an average compound annual growth rate of 22.5 percent over the past four years, helped by the removal of the minimum export price. Despite this growth, the report adds that there is a “pressing need to infuse professional management in the family-run companies.”

Mugdil says this professional management could come from private equity, with domestic and foreign firms eyeing the sector for deals. “Foreign private equity firms have been active in Indian food & agri…and they are interested in deals in this segment in future.”