Is India having its idli and eating it too?

RAVI ANANTHANARAYANAN

The Indian government’s worry over an increase in rice prices–up 11.5 percent over a year ago and by 3 percent over the previous month’s level—has led to a ban on non-basmati white rice exports. Its solution has the rice importing world worried and even NRIs in the US are emptying store shelves of rice bags, if social media is to be believed.

One US-based rice miller believes the ban is a ploy to flood the market later. Bobby Hanks, a Louisiana rice miller and chair of the USA Rice International Trade Policy Committee, says in an article on usarice.com, “…They want to hoard rice and protect their domestic prices when convenient and then dump rice via artificially low-priced exports when it’s convenient, with no regard for the impact on the world trade balance sheets or the food insecurity it creates. We’d call that having their rice cake and eating it, too.” Hanks gets credit for inspiring this article’s headline.

But, the government’s main goal is likely to avoid a spike in food inflation, by ensuring adequate supplies as protection against a poor Kharif crop. A prominent exporting country’s actions may also have played some role. To criticism that it could starve the world of food, the government has said it will supply rice through governments.

The main reason for the world’s worry, of course, is India’s domination of the global rice export market. The chart titled ‘India and the World--Rice exports’ shows that 55.7 million tonnes of rice was exported in 2023 of which India’s share was a massive 40.4 percent. This was projected to increase to 40.9 percent in 2024. It has been around these levels since 2021. A distant second is Thailand with a 15 percent share and Vietnam at third with a 13.4 percent share. After that, the remaining exporters’ shares drop sharply going into mid-single digits and below.

The chart ‘Share of rice variety in exports’ shows that of India’s rice exports, parboiled rice has the highest share at 35.1 percent, white rice at 28.6 percent, basmati rice at 20.4 percent, and then broken rice at 13.6 percent. Broken rice exports were already banned in September 2022 and a 20 percent export duty had been imposed then on non-basmati rice excluding parboiled rice. But that also means that 58 percent of total rice exports will continue and if you exclude basmati rice, then 45 percent of exports should still continue.

India’s export ban has led to concerns that global food inflation will spike. A FT article quotes agricultural expert Ashok Gulati, professor at ICRIER, as saying that the government action was a knee-jerk one because our rice buffer is three times the norm.

Adverse weather events occurring across the country and their unpredictable nature could be one reason for the government’s concern. India’s rain-fed agriculture relies on a predictable pattern of monsoon playing out, which is particularly true for paddy which needs a steady supply of water throughout the planting season. One valid reason could be that the government wants to shut the stable door before the horse bolts, and by keeping rice on-shore it can ensure adequate availability. If rice prices keep on increasing in this fashion, it could be a political minefield as elections are due next year.

But, the rapid increase in rice exports in recent months may be another reason for the government’s concern. The table ‘India's rice exports - YoY Growth’ shows a 65.8 percent decline in broken rice exports in April-May 2023 over a year ago, which is not surprising as the export ban is in place. But there’s been a 58 percent increase in white rice exports and a 25 percent increase in parboiled rice exports. If this increase keeps up, then we may end up exporting more than we would like to, in a year when there’s a question mark on output.

Therefore, the government may also be trying to curb opportunism among traders in importing countries. One of the reasons India’s rice may be finding favour among exporting countries is price, because its export price is lower than that of Thailand and Vietnam. Of course, varieties matter too but export benchmarks show it’s cheaper. A 12 July report by the US Food Agricultural Service reveals India’s rice exports were quoting at $470 a tonne in June, compared to $531 for Thailand, $519 for Vietnam and $495 for Pakistan. India’s exports were the lowest priced, among global exporters.

This is where a puzzle emerges, with credit to a segment featured in the FAS report mentioned above. Vietnam, which is the third-largest exporter of rice, is importing large quantities of rice despite an improved crop. In 2020, Vietnam produced 27 mn tonnes of rice, exported 6.2 mn tonnes and imported only 0.4 million tonnes. But, in 2023, it produced 27 mn tonnes, exported 6.7 mn tonnes, not very different from 2020 levels, but its imports went up to 1.7 mn tonnes. The excess is not due to consumption but a build-up of stocks, perhaps for enhanced food security. In 2021, it imported 800,000 tonnes compared to the earlier levels of 5-50000 tonnes it was importing annually.

Indian government data shows that Vietnam’s imports of parboiled rice from India were up 1609 percent in April-May 2023 over a year ago (on a low base) while white rice imports were up by 69 percent. Limited domestic supply means Vietnam imports were forecast to be high, said the FAS report.

The price arbitrage also means that an exporting country can import Indian rice at cheaper prices and keep for domestic consumption, and export its own rice at a higher price. Whatever may be the motive, India’s government would not like its rice to be used as a tool to attain another country’s trade or buffer objectives, at a time when domestic prices are rising and it needs to keep food inflation under check. This may partly explain the government’s actions too. Rather than wanting to eat its idli and have it too, it may have wanted to prevent others from doing it.

If rice prices continue to increase or exports of other rice varieties continue to increase sharply then more measures could be introduced to cool the market.

https://www.moneycontrol.com/news/opinion/chart-of-the-day-is-india-having-its-idli-and-eating-it-too-11015681.html