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India allows broken rice exports backed by letters of credit issued prior to ban

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As a sudden ban on exports of the rice prevented the loading of cargoes, India will permit overseas broken rice shipments of 397,267 tonnes backed by letters of credit (LCs) issued before 8 September, the government announced in a notification on Wednesday.

A letter of credit is a document that a bank issues as a guarantee that a buyer will pay a seller on time and in full. It might be made available as a facility to guarantee that the bank would be obligated to pay the entire or remaining balance of the purchase if the buyer is unable to make a payment.

The use of LCs has developed into a crucial component of international trade due to the nature of such dealings, which includes elements like distance, different laws in each country, and difficulty in getting to know each party personally.

According to B.V. Krishna Rao, president of the Rice Exporters Association, the concession to permit exports against already issued LCs will assist traders as many cargoes were trapped and buyers were requesting prompt dispatch.

He added that for many low income African countries, buying from other suppliers meant paying a “very high price”.

“Indian broken rice was at least 30% cheaper than other origins,” he added.

Background

India, the largest exporter of broken rice had enacted a ban on its exports on 8 September in an effort to increase supplies and stabilise domestic prices following planting restrictions brought on by below-average monsoon rainfall.

The surprise ban had created a tricky situation since prior to the government’s announcement, nearly 1 million tonnes of rice had been transported to the ports or was in transit.

India competes with Thailand, Vietnam, Pakistan, and Myanmar for market share of more than 40% of the world’s rice shipments.

With purchases totalling 1.1 million tonnes in 2021, China was the largest consumer of Indian broken rice, which it uses for animal feed. Other major consumers of broken rice for human consumption included Senegal and Djibouti in Africa.

(With inputs from Reuters)

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