determinants of rice export

8/11/2019 Determinants of Rice Export

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TABLE OF CONTENTS

I. ABSTRACT ............................................................................................ 3

II. INTRODUCTION .................................................................................. 4

III. OBJECTIVE ........................................................................................... 7

IV. HYPOTHESIS ........................................................................................ 7

V. LITERATURE REVIEW ..................................................................... ..8

VI. METHODOLOGY....

......9

VII. OTHER EXTERNAL FACTORS..13

VIII. COMPETENCIES ..14

IX. ANALYSIS OF TRENDS..17

X. CONCLUSIONS...19

XI. RECOMMENDATIONS....20

XII. REFERENCES...21


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I. ABSTRACT

The objective of this study is to examine the factors that can influence the export earnings

from rice in Pakistan. There are two types of tests are conducted to get the results and

findings and the data that is used to conduct the model is secondary. Both models haveproved that there is no significant relationship between independent variables (production,

interest rate, and exchange rate, domestic and international prices) with dependent variable

(export earnings from rice). The study showed that there are some external factors other than

selected factors for this study have more contribution towards export earnings from rice. It is

recommended that there should be appropriate price mechanism for farmers like set support

prices for them and there should be more exposure to other markets to increase export

earnings from rice.

Key Words: Pricing Mechanism, Support Price, Regression Analysis, Pair wise granger

causality test.


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II. INTRODUCTION

Agriculture sector of the Pakistan is the most important sector of the country because it

provides raw materials to the industry. It contributes substantially to the export of the country

and it also contributes 21 percentage of the total GDP of the country. Besides that, it isabsorbing 45 percentage of the total labor force. Agriculture sector plays vital role in

economic growth of the country by enhancing demand for goods and services as a result of

higher price of agriculture produce.

In 2010-2011, there was enormous growth in the agriculture sector (1.2 %) and in past year,

agriculture sector provided support to boost export of the country, to revival of manufacturing

sector and it is responsible to upbeat the consumption.

In agriculture commodities, rice considers to be dominant commodity in Pakistans economy.

Its importance is so wide because it is not just consider as a source to provide food but it is

also a source of export to Pakistan. Rice is 2nd

largest food crop in Pakistan and it contributesto 0.9 percent in GDP and 4.4 percent of value added in agriculture.

Types of Rice Grown in Pakistan

Basmati:1) Basmati 2000

2) Basmati385

3) Basmati198

4) Super Basmati

5) Basmati 370

6) Kernal

7) Shaheen ( Basmati)

Rice Other Varieties1) IRRI6

2) IRRI9

3) PG ( IRRI)

4) KS 282

5) DR


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Basmati, the king of rice, is held in the highest regard world over. Among all the other

varieties of rice, none have the distinctive long grains or the subtle aroma for which this grain

is considered so special. This also justifies the premium this rice commands against all other

rice of the world.

It takes birth in the most fertile valleys and plains of Pakistan. It is harvested by hand with

delicate care, aged to perfection and then processed. The result is an extra long, pearly white,

delicate grain with an irresistible aroma and delectable taste bringing alive an age of nawabs

and emperors, glittering courts and legendary chefs.

In terms of export, Pakistan is the fifth largest

exporter of rice and Pakistan exported 2.38 million

tons in 2010. Total export of rice decreased by 15%

in July-May (2010-2011) and there was also

decrease in export of non basmati rice by 25percentage in 2010 because of heavy devastating

floods in past year. The Basmati rice growing areas

are safe from floods because it produces in Punjab

but Irri rice in Sindh province badly hit by floods.

There are also some other factors that are causing

decreasing trend in the export of rice, e.g. mixing of

one type of rice with other rice, lack of technology

and no proper irrigation and harvesting system.

Besides Pakistan, there are other countries that do export rice at large quantity including

India, China, USA, Thailand, Vietnam, Brazil, Italy, UAE and Brazil.

Rice Exports

Pakistan is a major rice exporter and all trade is done by the private sector. The state-ownedRice Export Corporation was abolished several years ago. Today, another state tradingagency, the Trading Corporation of Pakistan (TCP), plays a limited role in the rice trade byfacilitating government-to-government exports through the private sector. The GOP inconsultation with the Rice Exporters Association of Pakistan (REAP) has established aquality review committee to certify the quality of Pakistani rice prior to shipment in an effortto boost the image of Pakistani rice, and especially Basmati rice.

There are some exporters of Karachi that are exporting rice including Al Owais Trading Co,

Kissan rice Traders, white Pearl Rice Exporters and Food Items etc.


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Rice Production

Pakistan grows high quality rice to meet both domestic demand and for exports. The following is thechart of production of rice in Pakistan from 1999-2010.


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III. OBJECTIVES OF STUDY

The aim of conducting this strategy is to determine the factors that can influence the export

earning from the rice with the following objectives:

Determine the factors and their relationship that can influence the export earning from

rice.

Obtain the result of findings using specific methodology.

Identify the market share of the Pakistan export earnings of rice in international

market.

Recommend some policies based on the finding of this study.

IV. HYPOTHESIS TESTING

Ho: Export earnings from rice have dependent on production and international price.

H1: Export earnings from rice have not dependent on production and international price.


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V. LITERATURE REVIEW

Rice is most important crop for Pakistan because it is 3rdlargest crop of Pakistan in term of

area after wheat and crop. Rice is also important source of earnings for Pakistan in terms of

export. But the quality of produce and export of rice is showing downward trend due to out-dated processing system, wrong harvesting system and floods in past years.

There are so many researches have been conducted to determine the factors that can increase

the quality of production and can make efficient harvesting system. Due to decreasing trend

in earnings of rice in past years due to natural calamities, researchers are now more

concerned to the agriculture sector and they are finding new ways to improve the productivity

of the sector by improving the quality of agriculture commodities.

According to Mr. Mohammad Amir Khan (Product officer at Trade Development Authority

of Pakistan), People are more production quality conscious of rice in domestic andinternational market, therefore the country has to put more focus on quality production to

meet the demands of the customers domestically and internationally.

Mr. Abdul Ghafoor and Sarwat Hanif, in the journal of agriculture and social science,

analyzed that government should put focus on more investment and production in agriculture

sector as countrys export are facing completion in the world market. There is a need to

increase the international trade to export the rice and there should be training conducted to

educate farmers about harvesting process.


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VI. MODELS & METHODOLOGY

The source to obtain the data for this study is secondary. They include economic survey of

Pakistan, publications of state bank of bank, Pakistan bureau of statistics, reputable

economics journals and Internet.

Regression Analysis

The model that is used to determine the different factors and their effects on the export rice earnings

has been used in the article Determinants of Agriculture export by B.N Angbonkpolar and H.Y

Umar.

The methodology that is used to determine factors and their effects on export earning from rice is

regression analysis. The function is stated as:

X = f (Q, DP, INTP, I, EXR)

X= Export earning of rice (Million $) from 2001-2010.

Q= Production of rice (tons) from 2001-2010.

DP= Domestic whole sale prices (PKR) from 2001-2010.

INTP= International Price ($) from 2000-2010.

I= Interest rate in Pakistan (%) from 2000-2010.

EXR= Exchange rate in Pakistan ($) from 2000-2010.


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Results

The results of regression analysis that were obtained are presented in above table and the

linear function is used in regression analysis to determine the highest significance of the

variable with the dependent variable (export earnings from rice). From above results, it shows

that there is no significance and strong relationship occurs with the export earning of rice (X).

For strong relationship, it is necessary that probability of the independent variable should be

less than 0.05 (P


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Pair Wise Granger Causality Test


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Results

The results of pair wise granger causality tests that were obtained are presented in the above

table. The test is conducted to as an alternative test to verify the results that were obtained by

regression analysis. In pair wise granger causality test, each factor or variable is tested with

the dependent variable in terms of its significance or relationship with dependent variable. In

this test, each variable is analyzed individually against the dependent variable (export rice

earnings) and in the table it has showed that each variable does not granger cause export

earnings (X).

From the above result, it shows that the probability of each variable is so high, it means thatthere is no strong relationship between each selected variables with export earnings from rice

(X) because for having strong relationship, it is necessary that probability of each variable

should be less than 0.05 (P


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VII.OTHER EXTERNAL FACTORS

Through the above tests it has proved that the export earnings from rice is not dependent on

production and international price so there are other factors that do contribute in export

earnings from rice, which are as follows:

Marketing strategies to promote rice can play important role in export earnings and through

research it has proved that marketing strategies are significant for export earnings. In 2005,

Pakistan exporters use innovative strategies for promoting rice to Arab countries.

Increasing demand from foreign countries for Pakistan rice also affect the export earnings

from rice. In 2010, Malaysia increased its import from Pakistan for rice and it caused high

export rice earnings.

Market diversification is other factor for export earnings from rice. Pakistan is now exploring

different markets for its export of rice like Arab countries and Malaysia.


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VIII.COMPETITIVENESS BETWEEN THE EXPORT

COUNTRIES OF RICE

Due to globalization, the trading pattern has been changed and there is lot of competition between

countries to improve their trading activities and export earnings. Asia is considered to be home of theworlds top rice exporters because rice is one of the major source of nutrition in Asian countries. The

rice market is more conservative than other agriculture commodity market that why its development is

restricted.

The main countries that are exporter of rice are Thailand, China, Vietnam, Pakistan, USA and India.

The following are the total export of rice of these countries in international export of rice from 2004-

2010.

Trend in World Rice Export (2004 - 2010) (US$ 000)

Exporters 2004 2005 2006 2007 2008 2009 2010

World 7,163,182 8,498,791 8,886,590 11,063,907 18,133,735 15,742,267 15,780,003

Pakistan 667,782 1,099,267 1,118,805 1,108,644 2,318,952 1,636,714 2,028,251

India 1,162,944 1,580,175 1,417,820 2,259,723 2,830,071 2,380,349 2,282,450

China 181,537 175,232 341,157 384,352 370,351 363,460 273,471

Vietnam 882,254 1,364,250 1,256,225 1,472,511 2,805,338 2,590,893 2,084,261

Thailand 2,363,741 1,955,816 2,204,513 2,913,289 5,358,502 4,321,697 4,723,866

USA 689,946 806,923 793,228 824,846 1,212,421 1,425,842 1,363,866


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Trend in World Rice Export (2004 - 2010)(US$ 000)

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

18000000

20000000

2004 2005 2006 2007 2008 2009 2010

World

Pakistan

India

China

Thailand

Vietnam

USA


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Market Share in World Rice Export (2004-2010) (%)

Market Share in World Rice Export (2004-2010) (%)

0

5

10

15

20

25

30

35

2004 2005 2006 2007 2008 2009 2010

Pakistan

India

China

Thailand

Vietnam

USA

2004 2005 2006 2007 2008 2009 2010

Pakistan 9.92 12.28 13.36 10.02 12.78 10.39 12.85

India 16.23 18.6 16 20.4 15.6 15.1 14.46

China 2.53 2.06 3.83 3.8 2.04 2.3 1.73

Vietnam 12.3 16.05 14.136 13.3 15.4 16.4 13.2

Thailand 33 23 25 26 29.5 27 30

USA 9.6 9.5 9 7.4 7.5 9 8.6


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IX.ANALYSIS OF TREND OF EXPORT OF RICE IN

PAKISTAN (2004-2010)

Pakistan share in international export market of rice is far lower than the potential enjoyed by

the country. Low exports are due to inconsistent government policies, inability of local

exporters to market the commodity in the international markets and above all failure of

exporters to deliver the agreed quality.

In 2004, Production of rice in Pakistan has been adversely affected due to near-drought

situation in the country during last three years. Not only that area under rice cultivation

declined but production was also lower. This naturally caused decline in export of rice from

Pakistan.

In 2005-2006, the share of Pakistan export of rice in international market increased and this

credit goes to exporters who actually invented new ideas and techniques to market long-grainbasmati rice, also famous as white pearls in different countries in the world.

In this year, exporter did more focus on the marketing strategy to increase the export of the

rice and for this purpose they were created innovate activities like introduced long grain

basmati rice in the Arab countries, the Pakistani exporters have organized lunches and

dinners in Saudi Arabia and United Arab Emirates where different famous dishes of the

basmati rice was served to the visitors. The exporters also distributed, free of cost, 5-10 kg

bags of basmati rice among the guests, who attended lunches and dinners and this technique

created a perennial share of Pakistani rice in Arab countries.

In 2005-2006, the quantity in terms of export of basmati rice from Pakistan to different

countries had increased to 0.895 million tons in 2005-2006 as against 0.814 million tons in

2004-2005.

The food prices crisis of 2007 2008, hit the Pakistani market as well, halted the export of

rice significantly and destroyed the export segment of rice trade at worst. Several measures

were taken by the rice exporters, including manipulation with quality to keep the prices in

control but in vain.

The year 200607 had left worst effects on Pakistani Basmati Rice trade and export becauseof the Irans stockpiling and massive purchases of food grain, leading Pakistani basmati

prices to dramatic higher levels, global food shortage and hoarding and market fluctuation.The situation has destroyed the rice trade potential and several Rice mills were forced to shutdown operations due to unavailability of rice in the market, several exporters had to shift their

businesses towards other activities leaving Rice Export aside as they were not able to meetthe demands of foreign buyers.

The dramatic increase in prices had also adverse impacted on the traditional markets ofPakistani rice like U.A.E. As the result of sudden increase in prices in local market ofPakistan, export prices have soared considerably and the importers have ceased placingorders to Pakistani Rice Exporters.


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There was declining market share of Pakistan in export of rice internationally because in

August,2008, there was flood in Pakistan and because of this rice export of Pakistan was

effected and harvesting of new crop was also another reason of low production of rice in

Pakistan and it also effected the export of rice of Pakistan internationally.

In 2010, there was four times increase in imports of Malaysia from Pakistan; this is the main

reason of increasing trend of market shares of Pakistan in international rice export market.


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X. CONCLUSION

Rice is a major source of export earnings for Pakistan but due to heavy floods in the past

year, the export earnings from rice is showing decreasing trend. This study has conducted to

determine the effects of internal factors on export earnings of rice in Pakistan. In order to get

some results and findings, two tests were conducted, regression analysis and pair wise

granger causality test, results of both tests showed the same results and they have proved that

there is no strong relationship between internal independent variables (production, interest

rate, exchange rate, domestic prices and international prices) with dependent variables

(earnings from rice).

The data that is used for conducting this study was authentic and verified but the range for

collecting data (2001-2010) that is used is quite small so it can be one reason that the models

did not show any relationship between the dependent variable and independent variables.

There are also other factors that contribute in increasing and decreasing trend of export

earnings of rice that includes innovative marketing strategies, floods in the country,

harvesting new crop, political instability, economic stability and law and order situation of

the country.


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XI. RECOMMENDATIONS

The result of the study showed that production, interest rate, exchange rate, domestic prices,

international prices do not play key role in export earnings from rice in Pakistan. There are

other external factors that are playing important role in export earnings from rice and

Pakistan has more reliance on external factors for generating it revenue from export of rice.

In order to improve the influence the internal variables towards export earnings, the following

steps should be taken.

There is a need to explore new markets to fulfill the demands of different markets. It will help

the sector to increase the export earnings from rice and it will also help to mitigate the losses

that Pakistan has been faced in past years due to heavy floods in Pakistan.

The government should take steps to encourage farmers by providing appropriate pricing

mechanism, it will increase the efficiency of the farmers and it will also help to boost the

productivity of the sector.

Export of rice from Pakistan is dependent on supply-side management and proactive export

marketing. There should be adequate supply of water, agriculture inputs and most importantly

certified seeds. The country must also have adequate and superior quality storage facilities.


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XII. REFERENCES

www.sbp.org.pk

www.pbs.gov.pk

Economic survey of Pakistan

www.tdap.gov.pk

Journal of Agriculture and Social Sciences

Research paper on determinants of agriculture export by B.N Angbonkpolar and H.Y Umar.

www.pakistaneconomist.com

www.pakissan.com

www.nation.com

www.dailytimes.com
http://www.sbp.org.pk/http://www.sbp.org.pk/http://www.tdap.gov.pk/http://www.tdap.gov.pk/http://www.pakistaneconomist.com/http://www.pakistaneconomist.com/http://www.pakissan.com/http://www.pakissan.com/http://www.nation.com/http://www.nation.com/http://www.dailytimes.com/http://www.dailytimes.com/http://www.dailytimes.com/http://www.nation.com/http://www.pakissan.com/http://www.pakistaneconomist.com/http://www.tdap.gov.pk/http://www.sbp.org.pk/

determinants of rice export

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