Keep calm and carry on: Unlike wheat, rice isn’t hot yet

On a Friday evening in May, when India banned exports of wheat to keep domestic food prices in check, global markets went into a tizzy. The hope that the world’s second largest producer of wheat would fill a part of the supply void created by the Russia-Ukraine war was dashed. Chicago wheat futures shot up by the maximum allowed when trading resumed post-weekend on 16 May.

The world is now worried that India might restrict exports of rice too, pushing prices higher and worsening global food security. So far, rice is the only food commodity that has defied the sprut in global food prices that shot up by 60 per cent in May, compared to 2020 levels.

And India is a far bigger player in the global rice trade than it is for wheat.

According to estimates from the United States Department of Agriculture (USDA), India’s contribution to the global wheat trade stood at 3.5 per cent in 2021-22, but the reaction to the ban was still strong.

The numbers for rice are at a different level. In 2021-22, India exported a staggering 21 million tonnes of rice, close to 40 per cent of the global rice trade.

Many of the world’s poorest, low-, and middle-income countries — from Nepal and Madagascar to Kenya and Indonesia — depend on cheap rice supplies from India. India exports non-basmati rice to more than 150 countries across the world.

Fears about an export ban on rice are unfounded as of now, B.V. Krishna Rao, president of the Rice Exporters Association, said. “Domestic rice prices are currently about 10 per cent lower than minimum support prices (MSP). So, a situation like wheat is unlikely in rice.”

A severe heatwave in March-April this year led to a sharp drop in wheat production and pushed wholesale prices above the MSP. After the government failed to procure enough wheat for its public food security schemes, it imposed an export ban in May.

While wheat is planted during the winter months, usually under assured irrigation, close to 40 per cent of rice area is dependent on monsoon rains. The June-September monsoon season determines the production of kharif crops like grains, pulses, and oilseeds.

Rainfall data from the India Meteorological Department (IMD) shows that, until 1 July, the monsoon has seen a deficit of 6 per cent compared to the long period or 50-year average, with central India recording a deficit of 28 per cent.

Among the top 10 rice-growing states, rains have been deficient in Uttar Pradesh (-46 per cent), Chhattisgarh (-27 per cent) and Odisha (-37 per cent), while Assam is battling severe floods (59 per cent surplus rains).

However, the rice area under irrigation is high in Uttar Pradesh (86 per cent), and since Chhattisgarh, Odisha and Assam contribute less than a fifth to India’s total rice production, the impact of erratic rains is likely to be limited.

The slow progress of monsoon did impact planting of kharif crops in June, estimates from the agriculture ministry show. But sowing is likely to pick up pace as the monsoon progresses.

Until Friday, the area planted under different kharif crops was 5 per cent lower year-on-year. Area planted under rice is 27 per cent lower so far, compared to the year before.

“We still have time left for planting and rains to pick up,” Rao from the Rice Exporters Association said. He added that India currently has surplus rice stocks, both with public agencies and millers, which will prevent any sharp rise in prices.

As of mid-June, India’s publicly held rice stocks were at a comfortable 33 million tonnes, more than double the requirement for food subsidy schemes and strategic reserves (13.5 million tonnes).

According to Rao, the export price for Indian non-basmati rice, which comprises more than 80 per cent of the country’s rice exports, increased by a modest $20 per tonne since the beginning of the year, to $350 per tonne in June.

“After Bangladesh slashed import duties (in June), export prices rose by 2-3 per cent (on higher demand),” Rao said, adding that a good monsoon in India will keep prices in check.

International rice prices have increased steadily since the beginning of 2022 amid strong import demand and supply constraints, but average prices in May 2022 are still 1.2 per cent lower compared to the year-ago period, the United Nations’ Food and Agriculture Organization (FAO) said in a June 2022 report on global food markets.

Abundant availability of the most widely traded Indica varieties (where India is a major supplier) has capped price increases, the FAO report added.

International rice prices also depend on a host of factors other than the monsoon in India, S. Chandrasekaran, a Delhi-based trade policy analyst, said.

“High prices of fertilisers and lower usage in countries like Sri Lanka, Bangladesh, Pakistan and Nepal can limit production and push global rice prices higher. A robust demand for Indian rice in global markets, particularly from China (the largest importer of non-basmati rice), can lift domestic prices in India,” Chandrasekaran said.

However, if the monsoon plays truant, world markets could be in for turmoil. “Monsoon’s impact on kharif crops including rice will be clear only by the end of July,” Himanshu (he doesn’t use a last name), an economist at Delhi’s Jawaharlal Nehru University, said.

“India has enough stocks to last till September… and prices have been contained by ample supplies of free and subsidised rice under central food security schemes,” Himanshu added.

Early May, India substituted around 11 million tonnes of wheat under food subsidy schemes with rice, which kept domestic rice prices in check.

Data from the consumer affairs ministry show that retail rice prices rose by 1.3 per cent over the past year (as on 30 June), compared to 9.4 per cent for wheat flour.

Yet one cannot completely rule out export restrictions on rice, said an industry insider who did not want to be named.

“It depends on how global prices and food inflation in India move in the coming months. There is a thin chance India may restrict exports if domestic production falls short of target and world prices surge on robust demand for Indian rice.”

Tags: futures, supplies, food prices, banned, Ukraine, Non-Basmati, Russia, kharif crops, exports, Global Markets, rice, wheat, India