Unraveling the Potential Global Food Crisis as India's Rice Export Ban and its Far-reaching Consequences
Why India's Rice Export Ban Might Precipitate an Imminent Global Food Crisis?
Overview
“I’ve suffered a tremendous loss,” said the third-generation farmer, who relies solely on growing grain to feed his young family. “I will not be able to grow anything until November.”
Torrential rains wreaked havoc on northern India in July, leading to landslides and flash floods that swept through the region, the newly planted saplings have remained submerged underwater.
Farmers reported that they have not seen floods of this scale in years and have been forced to take loans to replant their fields all over again.
In the preceding month, India, holding the distinction of being the globe's foremost rice exporter, unveiled a prohibition on the export of non-basmati white rice. This strategic move was initiated to mitigate the escalating domestic prices and to safeguard the nation's food security. Subsequently, India reinforced its stance by imposing additional limitations on basmati rice exports, which encompassed the imposition of a 20% tariff on the export of parboiled rice.
Impact on the Rice Ban
Following the sudden declaration of the export embargo, a wave of panic buying was set off in the United States. This unsettling chain of events led to a substantial surge in the price of rice, reaching a level that hasn't been witnessed in nearly 12 years, as reported by the United Nations Food and Agriculture Organization
India's July 20 announcement of Non-basmati rice exports curtailed to ease 30% domestic price surge since October 2022. The recent ban adds to global rice market woes, with prices up 15%-20% since Sep 2022, following stability in early 2022 despite other cereal spikes due to the Russia-Ukraine conflict. In 15 years, India became the top rice exporter, holding 40% of the world's rice share.
After India's ban, major exporters Thailand, Vietnam, and Pakistan (ranked 2nd, 3rd, and 4th) aim to increase sales due to rising demand for their produce.
Following India's ban, global prices surged about 20%. Traders suggest a 15% additional increase might prompt Thailand and Vietnam to impose limits. In Thailand and Vietnam, rice prices hit a 15-year peak as buyers hurried to secure shipments due to India's export reduction.
India's recent action builds on previous export limitations on rice. In 2022, India barred broken rice exports and added a 20% tariff on non-basmati rice exports. Despite this, rice exports hit a record 22.3 million metric tons in 2022. However, the new ban could reduce these figures, elevating global prices and increasing food insecurity concerns
Who does India’s rice export ban impact the most ?
Farmers hit hard
Comprising nearly half of India's workforce, farmers play a pivotal role. Over 80% of the country's rice production occurs during the summer season. However, this year's delayed rains led to extensive flooding, causing substantial crop damage.
The voice of the farmers
Surjit Singh, 53, a third generation farmer from Haryana said they “lost everything” after the rains.
“My rice crops have been ruined,” he said. “The water submerged about 8-10 inches of my crops. What I planted (in early June) is gone… I will see a loss of about 30%.”
The Crisis Timeline
Types of Rice Exported from India
Basmati rice, a type prominent in India, boasts long, fragrant grains with distinctive aromas. Global favorite for dishes like biryani, fried rice, and pilaf. India is a key exporter of this variety. India ships out around 4 million metric tons of basmati rice to countries such as Iran, Iraq, Yemen, Saudi Arabia, the United Arab Emirates, and the United States
Non-basmati rice encompasses all rice types except basmati. It varies in size and shape, serving daily household and commercial purposes, both domestically and through exports.
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Impact of the Ban on India’s Domestic Market
The recent ban on non-basmati white rice exports by the Indian government is anticipated to decrease this fiscal year's rice exports by 4-5 billion tones. Despite a 5-6% rise in overall rice exports, there was a drop in production. Furthermore, rice stocks with the Food Corporation of India have decreased for the fifth consecutive year as of July 1, 2023. This shortage led to a 14-15% increase in domestic prices last fiscal year. The government took this action to address domestic food security and inflation concerns.
In 2022, the domestic consumption volume of rice was over 109 million metric tons in India. This is a decrease from the previous year when the domestic consumption volume of milled rice was about 111 million metric tons.
The Exporter’s Export Curb
Rice exporters will be unable to increase exports by more than 3 million metric tons this year as they try to fulfill local demand amid a limited surplus.
Thailand, Vietnam, and Pakistan ranked as the second, third, and fourth largest global rice exporters, have expressed their intent to increase sales in response to surging demand for their rice crops following India's export ban.
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Effects of the Ban
India's decision to halt rice exports has had a profound impact on both domestic and international markets, given that India is the world's largest rice exporter. This export ban has contributed to a global food crisis and has created significant disruption and uncertainty in international markets.
With India now entering its second harvesting period, known as the Summer Rice (Rabi) season, which runs from March to June following the sowing season from November to February, there is optimism that the supply shortage will be addressed. Many anticipate that India may consider lifting the export ban during this period as the new harvest comes in, potentially alleviating the strain on international rice markets.
Ban on Basmati Rice
The Indian government, in its efforts to reinforce the export ban on non-Basmati white rice, has implemented a new regulation stipulating that Basmati rice must not be exported for less than $1,200 per metric ton (MT). This move, enacted on August 28, serves as an additional precaution to curb the export of non-Basmati rice masquerading as Basmati rice. The ban on rice exports was instated by the government as a measure to stabilize the domestic market, as some were exploiting the international classification of Basmati rice to export non-Basmati varieties.
TOP 10 BUYERS OF BASMATI RICE
The Domino Effect
A domino effect or chain reaction is the cumulative effect produced when one event sets off a chain of similar or other events.
India's recent restrictions bear a striking resemblance to the measures it enforced back in 2007 and 2008, a move that set off a chain reaction compelling several other nations to limit their exports in order to protect their domestic consumers.
The current situation holds the potential for even broader repercussions on supplies and prices. This is due to the fact that India's share in the global rice trade has surged to over 40%, a significant increase from its approximately 22% share 15 years ago. Consequently, this places heightened pressure on other major rice-exporting nations like Thailand and Vietnam, who may find themselves compelled to take similar steps in response to India's actions.
Conclusion
In September of the previous year, India took measures to bolster its domestic rice supplies by imposing a ban on broken rice exports and introducing a 20% export tariff on non-basmati and non-parboiled rice. However, there is growing optimism that the ban on non-basmati white rice exports may soon be lifted, given the improved outlook for the standing crop.
Favorable monsoon rains have ensured adequate moisture, and kharif paddy sowing has exceeded last year's levels. Consequently, the government is considering the possibility of lifting the export ban on white rice in the near future.
Notably, international organizations like the International Monetary Fund (IMF) and the Food and Agriculture Organization (FAO) have urged India to ease restrictions on white rice exports, citing their contribution to the global rise in rice prices.