India Rice Ban!

By: Mr. Prashant Pimple

Rice is one of the most vulnerable crops to the effects of EL Nino.

El Nino is a natural, temporary, and occasional warming of a part of Pacific that impacts global weather patterns, having a direct impact on rainfall in Asia; and it is believed that climate change is making these conditions stronger and frequent. Past El Ninos have resulted in extreme weather, ranging from drought to floods.

Recent higher than normal temperatures and drier conditions in Asia have resulted in shocks to the global rice market, leading to an increase in its international prices. Countries like Pakistan, China, Indonesia have already been facing a shortfall in rice production due to extreme and abnormal weather conditions like less rainfall and also flood like situations.

Globally, the price of rice is expected to increase sharply as India on July 20th, 2023, announced a ban on non-basmati rice exports, which constitute about 25% of the India’s total rice exports. India being the world’s biggest rice exporter, accounting for ~40% of global trade by volume, (The Economist, 2023), a ban from India is expected to disrupt the international trade in rice.

A study by world bank estimated that past instances of export restrictions and insulating behaviour by countries resulted in sharp increase in rice prices. For instance, in 2006–08, 45% of the increase in rice prices was due to insulating behaviour, initiated by Vietnam imposing restrictions in June 2007, followed by India in October 2007, and by May 2008, Pakistan and Thailand also joined in. The combined market share of those four countries was over 70%. Also, now post India’s ban on rice exports, Vietnam, in anticipation of higher export prices has already seen surge in domestic rice prices. 

The immediate ban was introduced post soaring domestic rice prices. India saw a surge in rice prices led by high export prices seeping into domestic market and recent flooding in north and deficient rainfall in the south has led to fears on supply shortfall.

India’s reasoning for banning rice exports stems out of the worrying high domestic prices. Retail prices in June-2023 itself have shot up by 12% y/y. 

Such price increases have high spillovers as rice has ~4% weightage in the CPI basket and is also one of the staple food commodities consumed in India. High staple food prices have far-reaching socio-economic impact and can lead to social and political upheaval. No government fancies the prospect of hangry voters in an election year.  This is also why all governments try to minimise the spillovers from high inflation. 

Source: The Economist, US Department of Agriculture, IFPRI

The author is a Chief Investment Officer – Fixed Income Baroda BNP Paribas Mutual Fund

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