The global market is on edge as India’s prohibition on rice exports raises the possibility of competing suppliers taking comparable measures to prevent potential shortages within their own countries. This move comes as sellers scramble to bridge the significant 10 million metric ton void created by New Delhi’s decision. These developments have amplified worries about the existing elevated levels of worldwide food inflation.
Read More: India prohibits non-basmati white rice exports amidst supply concerns
Analysts note that India’s most recent limitations closely resemble the ones enforced in 2007 and 2008. During that period, these measures set off a chain reaction, compelling numerous other nations to also restrict exports in order to protect their domestic consumers.
In this iteration, the potential repercussions on availability and costs could be considerably broader. Presently, India holds over 40% of the global rice trade, a substantial increase from its approximately 22% share fifteen years ago. This heightened proportion places added strain on rice-exporting countries like Thailand and Vietnam, intensifying the pressure for them to take similar actions.
“India is now much more important for rice trade than it was in 2007 and 2008. The Indian ban back then forced other exporters to implement similar restrictions in a domino effect. Even this time, they have few options but to react to market forces,” a New-Delhi based grains dealer with a global trade house said on condition of anonymity.
The effect on the prices of the most widely consumed essential food item globally has been rapid, reaching levels not seen in fifteen years. This followed India’s unexpected move last month to enforce a prohibition on the sale of commonly consumed non-basmati white rice, aiming to mitigate the escalation of prices. It’s worth noting that in 2022, New Delhi had already limited the supply of lower-quality broken rice.
Restricted availability increases the potential for a surge in rice prices, exacerbating global food inflation, particularly affecting underprivileged consumers in Asia and Africa, as per observations from analysts and traders. The situation is compounded by existing challenges faced by food importers, who are contending with constrained supplies due to unpredictable weather conditions and disruptions in shipments from the Black Sea region.
“Thailand, Vietnam, and other exporting countries are poised to step up their game, all in a bid to bridge the gap stemming from India’s shortfall,” said Nitin Gupta, senior vice president of Olam Agri India, one of the world’s top rice exporters.
“However, there exists a constraint in their surplus capacity for exports. This constraint could set the stage for a surge in prices at other origins, reminiscent of the notable price rally we witnessed in 2007/08.”
Back in 2008, the cost of rice skyrocketed to an all-time peak exceeding $1,000 per ton. This surge followed export restrictions imposed by India, Vietnam, Bangladesh, Egypt, Brazil, and several other smaller producers.
On this occasion, rice exporting nations will face a constraint in their ability to raise exports by more than 3 million metric tonnes annually. This limitation stems from their efforts to meet domestic demands within the confines of a restricted surplus. This information was shared by three sources within global trade houses in conversation with Reuters.
Thailand, Vietnam, and Pakistan, ranked as the second, third, and fourth largest global exporters of rice, have expressed their eagerness to enhance sales. This decision comes in response to the escalating demand for their produce, a trend that has emerged following India’s export ban.
Both Thailand and Vietnam have underscored their commitment to safeguarding their domestic consumers against the adverse effects of increased exports.
“It’s unacceptable for a rice-exporting country to face tight supplies and high domestic prices,” Vietnam Minister of Industry and Trade Nguyen Hong Dien said last week.
Recovering from the devastating floods of the previous year, Pakistan has the potential to export between 4.5 million and 5.0 million tons, a notable increase from the current year’s 3.6 million tons. This projection comes from an official associated with the Rice Exporters Association of Pakistan (REAP).
But the country is unlikely to allow unrestricted exports amid double-digit inflation, the official said.
Among the prominent purchasers of non-basmati rice are the Philippines, China, Senegal, Nigeria, South Africa, Malaysia, Cote d’Ivoire, and Bangladesh.
Following India’s export prohibition, there has been an approximately 20% surge in global prices. Traders from international trading companies suggest that if prices were to rise by an additional 15%, it could prompt Thailand and Vietnam to implement their own restrictions.
“The question is not whether they will limit exports, but rather how much they will restrict and when they will take such measures,” said a New Delhi-based trader.
In the current week, rice prices in Thailand and Vietnam have surged to levels not witnessed in the past 15 years. This escalation can be attributed to buyers hurrying to secure shipments in response to the reduction in India’s export volumes.
Rice serves as a fundamental dietary component for over 3 billion individuals, with nearly 90% of this water-intensive crop originating from Asia. However, the prevalence of dry El Nino weather patterns poses a significant threat to crops in pivotal producing nations within the region.
Following insufficient rainfall during June and July, Thailand has recommended that farmers reduce the cultivation area for the second rice crop.
In India, the irregular distribution of monsoon rainfall resulted in flooding across certain rice-growing northern states, while simultaneously, certain eastern states faced insufficient precipitation for initiating planting.
Read More: Erratic rainfall causes 20% surge in rice prices within 10 days
Good monsoon rainfall is needed for normal production, which would allow New Delhi to reverse the ban on exports, said B.V. Krishna Rao, president of the Rice Exporters Association of India.
Rao said only Indian supplies can restore equilibrium in the global rice market.
“We will have to see for how long India’s restrictions remain in place. The longer the ban is in place the harder it will be for other exporters to compensate for the shortfall,” said Peter Clubb, an analyst at the International Grains Council (IGC) in London.