Posted on August, 21, 2023 at 09:32 am
The ban on rice exports has disrupted global markets, threatening food security in the poor countries of Africa and South Asia. It is unlikely that either Indian consumers or farmers will benefit from the move.
The Union government’s decision, on July 20, to ban the export of non-basmati white rice has disrupted global rice supply chains.
International rice prices have turned volatile as even the price of in-transit rice cargoes has increased, and trade contracts are at risk of getting cancelled. It appears that the ban would deliver little relief to Indian consumers who have faced a relentless increase in rice prices in the last year. It is also unlikely that the move would benefit farmers by way of higher prices for their produce. Instead, it appears that private traders and influential lobbies like those representing ethanol producers would be the key beneficiaries of the export ban.
Food security in several poor rice-importing countries in Africa and South Asia is at risk because of the ban. Moreover, India’s credibility as a reliable exporter is in peril. However, it is clear that with or without the ban, Indian farmers are unlikely to benefit. Rather, private traders, millers, and exporters may be in a position to transfer their burden of losses to farmers, expressed via low prices they would pay farmers in the forthcoming rice procurement season, especially in the absence of government procurement acting as a countervailing force in the market.
The government’s reasoning that the ban would ensure foodgrain availability appears unsound, especially because it has done so little to actually procure foodgrains in the last couple of years, leaving the field open for private trade to exploit. As a result, its capacity to intervene in the market to check prices as well as ensure adequate availability appears to be greatly diminished.
The impact on the feed industry and Ethanol producers
Broadly, the categories of rice in India are basmati, non-basmati rice (NBR), and broken rice. Within NBR are two subcategories – non-basmati parboiled rice (NBPR) and non-basmati white rice (NBWR).
Exports of broken rice currently account for about one-fifth of all Indian rice exports, while NBWR exports account for about a quarter of all rice exports. The export of both these categories of rice has now been banned. The rest is basmati rice and NBPR which constitute 55% of Indian rice exports.
Broken rice is an essential ingredient for the animal feed industry as well as for ethanol production. In September 2022, the government prohibited the export of broken rice. Broken rice prices in India were then rising because high international prices were influencing domestic prices. In response to rising global prices, Indian exports were increasing sharply. Between April and August 2022, 21.31 lakh metric tonnes (LMT) of broken rice were exported, compared to just 0.41 LMT in the same period of 2018-19, an increase of more than 5000% in a three-year period.
Most of the Indian broken rice went to China, whose imports from India accounted for 97% of overall Chinese rice imports, most of which went to meet the needs of China’s feed industry and for making wines. Obviously, rising Indian exports have a domestic fallout, implying higher input costs for the Indian feed industry, which, in turn, translated into higher prices of milk, eggs and meat.
The government has justified the ban as necessary to ensure domestic food security and ensuring adequate availability of feed. However, two weeks after the broken rice ban in September, the government assured that rice availability position was comfortable and dismissed any fears of an availability crisis.
The government also justified the ban by citing the needs of the ethanol industry. Indian Ethanol production has been increasingly relying on broken rice and maize as raw materials, especially in periods when the supply of sugarcane wanes. Three years ago, the Food Corporation of India (FCI) started supplying broken rice from the buffer stock to ethanol distilleries. Since then, supplies have expanded rapidly: from 0.49 LMT in 2020-21 to 10.68 LMT in 2021-22 and to 13.05 LMT (till July 10) with five months remaining in ongoing ethanol season.
The total production of broken rice in India is 50-60 LMT, of which 32 LMT is targeted to be delivered to ethanol distilleries this year. The ban on exports thus appears to favour domestic ethanol producers by ensuring adequate supplies. While exporters would be affected by the ban, rising rice prices in India provide private traders the opportunity to continue making higher profits, especially if state procurement continues to sag as it has done in the last couple of years.
But there was more in store for exporters.
On July 28, the government also banned the export of de-oiled rice bran (DORB), a major byproduct of rice mills, till November 30. DORB is extracted using solvents from rice bran that has an oil content of 13-19%. With a rich vitamin-B composition, it is primarily used in animal nutrition products. DORB constitutes 25% proportion in cattle feed composition, thus acting as an essential ingredient. The justification of the ban on DORB exports is based on the claim that it would help keep in check milk prices, which have increased because of higher fodder prices.
However, this is considered a retrograde step by the Solvent Extractors’ Association (SEA) of India. It claims that it would affect milk prices by barely 1% since it only constitutes 25% of the feed composition. Besides, DORB exports constitute just 10-12% of total production (6 LMT, out of 55 LMT of DORB output was exported in 2022-23). Thus, the ban is unlikely to influence feed prices significantly. Therefore, the argument that the ban would help dampen milk prices appears to be without basis.
On July 24, in the same week when NBWR and DORB exports were banned, the government also halted the supply of subsidised rice via FCI to ethanol distilleries, following allegations that they were diverting (re-selling) rice supplied by the FCI. The government’s initial ban on broken rice exports, ostensibly to direct supplies to the ethanol industry (via the FCI), and its later decision to curb supplies from the FCI to the distilleries, thus appear paradoxical.
This is happening in a scenario when state governments are barred from buying rice from the Central Pool even at Rs 31 per kg for human consumption, particularly essential for Karnataka as it was seeking supplies for its food distribution. The distilleries, on the other hand, continue to receive FCI rice at Rs 20 per kg, which was incidentally reduced from the original Rs 22 per kg norm.
There are reports that the government, under pressure from ethanol producers who fear missing production targets, is considering resumption of supplies of FCI rice to the distilleries.
The ban on NBWR
On July 20, the government extended the export ban to NBWR, apparently in order to control domestic prices. Retail rice prices have increased by 11.5% (from April-May last year) and by 3% since June this year. But this price rise is for all varieties of rice, not just specific to NBWR. A 20 percent export duty has already been levied on NBWR exports since September 2022. Despite the high export duty, the exports were increasing significantly (35% higher than the previous year) as prices in international markets were high.
Following India’s rice ban, the United Arab Emirates (UAE) also banned rice exports and re-exports for four months for all varieties. Re-exports matter more for countries in the Middle East and Africa for whom the UAE is a transit point for rice imported from India. A week after the Indian ban, Russia also banned rice exports till December 31 in order to stabilise prices in its domestic market. This was after Russia withdrew from the Black Sea Grain deal, which has already affected the global wheat and maize supply chains and prices.
In the long run, India’s credibility as a major rice exporter is at stake wherein such sudden reactionary bans raise concerns about reliability. Rice export bans were also imposed during the financial crisis of 2007-08. Back then also, follow-up bans and restrictions by other countries especially Vietnam, Thailand, and Pakistan caused an inflationary spiral, which dampened trade volumes globally.
The implications for global rice trade and food security
Countries in Sub-Saharan Africa, middle-east and North Africa are most exposed in terms of rice export price inflation due to the ban. More than 40 countries rely on India for more than half their rice imports, with some African and south Asian nations importing more than 80 percent of their rice from India. In 2021, India’s share in their rice imports was – Benin (65.4%), Senegal (70.4%), Togo (88.69%), Nepal (99.4%), Guinea (78.9%), and Bangladesh (92%). Other major destinations of NBR exports are China, Cote D’Ivoire, Guinea, Vietnam, and Kenya.
Global rice-importing countries are worried and are exploring the possibilities of official bilateral contracts with India. Singapore, which imports 40% of its rice from India, has already reached out to Indian authorities seeking an exemption from the ban. Philippines fears spike in domestic rice prices, especially with the onset of El-Nino, and is exploring bilateral contracts with India as buyers in Vietnam’s markets (their primary source and third largest exporter globally) are increasing. Senegal has imposed stringent stock limits held by traders as Indian companies are reportedly hoarding rice there.
India’s share in global NBR exports, both parboiled and white, was 29.07% in 2021. Other major exporters of NBR and their respective shares in world exports are Thailand (13%), Vietnam (12%), USA (8%), Pakistan (8%), China (4%), and Cambodia (3%).
Global rice prices are at 12 year high, with All Rice Price Index (of Food and Agricultural Organization of the United Nations) rising by 2.8 percent in July 2023, and peaking at its highest nominal value since September 2011.
Vietnam and Thailand stand to gain the most, having hiked prices for rice exports. Pakistan might benefit from India’s rice ban as it is also one of the prime exporters of rice of the same quality as India. Pakistani exports are likely to increase because of increased demand from Mexico and Russia.
What about the Indian farmers?
The rice trade in India is dominated by private players because government procurement is confined to five rice producing states in India. Government procurement is above two-thirds of production in Punjab, Haryana, Chhattisgarh, Odisha, and Telangana. Punjab and Haryana, along with Western UP, account for 97% of the Basmati cultivation.
Trade intermediaries as well as farmers of northwest India are less bothered with NBWR ban because their basmati rice is exported globally via private trade and most of NBR is procured by the government at minimum support prices.
In other rice cultivating parts of India, NBR of all varieties and kinds is predominant. After the NBWR export ban, the supply kept for export is likely to be redirected domestically and might lead to reduction in domestic prices of rice. Given the bigger role played by private trade in non-basmati growing states where government procurement is low, it appears unlikely that private trade would come under significant pressure to reduce their margins because of the export ban. Indeed, when prices were rising even before the ban, they were benefiting the most; and, farmers are unlikely to benefit meaningfully, especially in the absence of public procurement.
While the private exporters may lose their ability to profiteer from exports, the possibility of higher domestic prices offers them some compensation. Indeed, it is likely that the squeeze on their margins may well be offset by farmers being shortchanged by offering them low prices, a tendency observed before as well.
Domestic rice availability concerns
Month-wise rice stocks in the Central Pool have always remained much above the buffer stock norm for all benchmark months
However, incredibly, the stock-holding norm itself has not changed since 2015. That normative standard would appear to be outdated, especially in the context of the pandemic and its aftermath. Rice stocks on July 1 this year were roughly 70 LT less than the available stocks at the same period in the last two years. Nevertheless, the question of possible shortage in the Central Pool hinges crucially on how much the government procures after the next kharif harvest.
This is significant because the performance on the procurement front has not been encouraging in the last two years. The ratio of procurement to production has been decreasing from 48% in 2020-21 to 44% in 2021-22 and was at 42% in 2022-23. This is despite rice production increasing from 1243.7 LT to 1355.4 LT in the same period. In fact, state procurement fell from 602 LMT in 2020-21 to 570 LMT in 2022-23, a drop of 5%, even as output increased by 9% during this period.
Knee-jerk reaction
The current stocks of rice are with traders, millers, and exporters; these will be most affected by the export bans. These bans are unlikely to benefit farmers immediately or directly. Regionally, the ban will have a bigger impact on non-basmati rice cultivating regions (south, east, and central India) where private trade plays a more crucial role in procurement, which curtails the ability of the government to ensure adequate availability at a reasonable price through its distribution channels.
It is possible that the bans are a result of worries that spiralling grain prices could turn into a major issue in the election cycle that looms. However, export bans are unlikely to result in dampening prices, primarily because of the government’s inability to procure more through direct intervention in the market for agricultural produce. Export bans on grains are generally not the preferred policy tool because such exports have global implications for price stability and food security. From a national food security standpoint, the export ban appears to be a knee-jerk reaction to rising domestic prices.
Source: The Wire