FEATURE: Afghan currency crisis resulting in switch to non-Basmati rice imports from Pakistan

Afghanistan's ongoing foreign exchange crisis is having a major impact on the country's rice import market, according to Pakistani sources, with higher domestic prices leading to a noticeable shift in the varieties being imported from its southern neighbor.

Following the Talian's takeover of Kabul in August , the country has been increasingly cut off from international financial markets, and much of its assets are currently frozen by the US. This has contributed to a collapse in the value of the local currency, the Afghani, leading to rising prices for a range of commodities the country needs to purchase on international markets, including rice.

Afghanistan is not a particularly significant rice consumer due to relatively low domestic production and local food traditions. "Afghanistan has a deep-rooted preference for wheat/flour/bread, which provides more than half of the calories consumed," said a source with knowledge of the Afghan food market. Nevertheless, rice is still the second most important cereal for the country, and developments in Afghanistan's rice trade can provide a window into a country struggling with food security.

Faced with a drop in exports to Afghanistan, on Jan. 21, the Economic Coordination Committee in Islamabad, Pakistan started allowing exports of rice to Afghanistan to take place in Pakistani rupees, rather than in dollars. Exports from Pakistan to Afghanistan declined from $517 million in July-December 2020 to only $328 million during the same period of 2021, according to Pakistan's DAWN newspaper, partly driven by a severe lack of dollars in Afghanistan.

While rice trades in a variety of currencies, the market is firmly linked to the US dollar, which dominates international seaborne trade. Although most Afghan rice imports are sourced from Pakistan and now take place in Pakistani rupees, currency volatility has massively impacted Afghanistan's ability to purchase rice internationally. In less than a year, the Afghani has depreciated by around a third, pushing up the local cost of buying rice in foreign currency.

As an example, the S&P Global Platts assessment of standard Pakistani 5% broken white rice has fallen by more than 20% in dollar terms over the last 12 months, reaching $349/mt FOB Jan. 28. However, in Afghan currency, the price has risen slightly from around AFN 34,700/mt FOB in January 2021 to AFN 36,022/mt FOB now.

"Afghanistan is continuing the sale and purchase trade, but it is slow due to the dollar shortage [there]," a Pakistani rice source said.

Sources also reported a change in demand patterns as Afghan buyers moved away from the premium varieties they previously bought, to more affordable grades of rice. A trading source in Pakistan told Platts: "Usually, they eat Basmati but due to inflation, they now buy other rice."

Previously, Afghanistan would buy premium high quality grade Basmati rice such as 1121 Parboiled and Super Kernel White Basmati, according to two separate trading sources.

The difference in cost is significant, illustrated by Platts' latest assessment of 1121 Parboiled Basmati 2% broken at $1,026/mt FOB FCL on Jan. 28, a $677/mt premium to 5% broken white rice, which was assessed at $349/mt FOB. The cost difference to an Afghan buyer is significant, with the difference between the two grades in local currency having risen to the equivalent of AFN 70,000/mt in January 2022 from only AFN 31,000/mt a year earlier.

As food security remains a concern at the forefront of most Afghani's minds, the country has little choice but to adapt and seek alternative methods of payment to suit their current situation. It remains to be seen how exactly the humanitarian crisis they currently face will play out, with the absence of the frozen assets by the US putting pressure on their buying power. However, Pakistan at least seems willing to adapt along with them through a mixture of humanitarian aid and recent changes to export restrictions to encourage fresh trade.