Indian white rice trade disrupted by PDS rice diversion concerns at Kakinada port

State government-led measures to prevent the unlawful diversion of Public Distribution System (PDS) rice to exports from Kakinada have slowed white rice trade at the port, prompting exporters to shift operations to the west coast, sources told S&P Global Commodity Insights on Dec. 13.

The Cocanada Chamber of Commerce issued an advisory Dec. 6 to logistics service providers and handling agents "in respect of white rice at Kakinada port to avoid rendering their services in [the] future."

The state government has been taking strict measures, heavily policing ships and warehouses at Kakinada port amid allegations of PDS rice being diverted to export rice, sources said.

"There is some panic among exporters, and even NCEL [National Cooperative Exports Ltd.] shipments have been delayed. The issue is with rice-to-rice cargo, which the government is checking," an Andhra Pradesh-based exporter said.

The problem lies with rice-to-rice cargoes, which are typically exported to African destinations. Exporters said that freshly milled cargoes are currently limited, as millers are occupied with custom milling of rice for government procurement and storage.

"The freshly milled rice cargo from the Andhra belt is available but only in small volumes like 500-1,000 mt. If a buyer asks for 10,000 mt of freshly milled white rice, it won't be available easily," the exporter said.

Trade shifts to west coast ports

"The situation at Kakinada port has become increasingly problematic as the government has begun seizing cargo, alleging that rice intended for the Public Distribution System (PDS) has been illegally diverted for export. While there may be some truth to these allegations, the complexity of the trade system makes it difficult to pinpoint responsibility," Dev Garg, vice president of the Indian Rice Exporters Federation, said.

"If an exporter unknowingly procures rice that was misappropriated and their shipment is seized, they can still face penalties under the Essential Commodities Act. This has created significant challenges for the trade, as exporters are being held accountable for issues originating earlier in the supply chain. The government should address the problem at its source, targeting the initial diversion of food grains rather than penalizing exporters."

"The situation is prompting exporters to avoid Kakinada, with cargoes increasingly being redirected to Kandla port. This shift is likely to result in a substantial decline in trade through Kakinada. Although India has surplus food grain stocks sufficient to cover the current export gap, a shutdown of Kakinada port would lead to congestion, delays in shipments, increased freight costs, and reduced export volumes. This could even result in some trade being diverted to Pakistan, particularly for bulk shipments," Garg added.

A similar sentiment was echoed by an Odisha-based miller, who said that there is a leakage in the PDS system, with a significant amount of PDS rice not being consumed domestically by the people it is intended for. They suggested that the government should take measures to prevent such leakage at the distribution stage.

Congestion at Kakinada port slows trade

While exporters and suppliers are staying away from Kakinada port, sources said that multiple ships standing at the port are causing congestion and resulting in longer loading times.

"White rice trade has moved to ports like JNPT, Kandla and Chennai from east coast ports like Kakinada and Vizag currently. There is congestion at Kakinada port with vessels stationed for October-November contracts. Kakinada is a deepwater port with barges as the only loading option and only 6,000 mt a day as loading capacity. Many vessels standing at Kakinada port arrived from multiple other ports and routes, adding to congestion. Currently congestion at Kandla port is better as now holidays are over; hence, exporters are preferring that port," a trader said.

Tepid demand pressures prices

Despite disruptions at Kakinada port, fresh demand for long grain white rice remained subdued. Due to sluggish international demand for long grain white rice, exporters shifted to trading medium grain white rice, such as Swarna 5%.

Platts, part of Commodity Insights, assessed 5% WR at $443/mt FOB on Dec. 12, down $8/mt month over month but unchanged week on week, while 25% WR was assessed at $425/mt FOB, down $14/mt month over month and unchanged week on week.

Market participants anticipate that unless fresh demand, such as from Bulog, enters the market, the Indian white rice market will continue to see bearish sentiment due to the higher supply of the bumper new crop.

With higher supply, India is forecast to export 20.5 million mt of rice in the marketing year 2024-25 (October-September), up 42% year over year, according to Commodity Insights data. Meanwhile, production is estimated at 144.3 million mt, up 4.7% year over year.