Posted on October, 23, 2023 at 08:10 am
EL NIÑO has started to cause some concerns in Asia, and it’s a strained rice market that’s facing the first test from the weather phenomenon.
The market has already been upended by export restrictions from top shipper India and drier weather from the event threatens to cause more chaos. Any loss of production risks tightening global supply, and could prompt a renewed rally in prices which have cooled recently from the highest in almost 15 years.
Across Asia, nations are warning about the impact.
Major importer Indonesia has flagged a marginal hit to output, while Vietnam has told farmers to plant their next crop earlier than usual to avoid water shortages. The Philippines is also giving aid to growers to cope with the weather as rice inflation soars.
The weather worries rippling across the rice market are the first signs of real concerns about the potential hit from the cyclical phenomenon. The climatic event can parch crops, strain power grids, impact fishing and cut off access to mines due to flooding across regions from Asia and Africa to South America.
“Many crops, especially those highly dependent on water supply, will be badly affected by El Niño,” said Muhamad Shakirin Mispan, an associate professor at Universiti Malaya’s Institute of Biological Sciences. Lower output from key producers will “significantly impact global rice supply, affecting not only South-East Asia but also reverberating across the world”, he added.
The rice market has seen weeks of turmoil after India ramped up restrictions on its shipments in late July. The move has worried governments from Asia to Africa, led to a flurry of supply deals and diplomacy, prompted warnings about hoarding, and fuelled inflation in the Philippines and Indonesia.
The event usually brings hotter and drier weather across parts of Asia, and can lead to drought and wildfires. Indonesia plans to import more of the grain this year and next, and says its 2023 output may drop by 1.2 million tonnes. Unhusked rice production was expected at 54.5 million tonnes, slightly lower than 2022.
Vietnam, the third-biggest rice exporter, asked growers in a section of the Mekong Delta that accounts for 26% of the region’s winter-spring crop to start planting from early this month, rather than November. The directive was given to avoid water shortages at the end of the harvest, in part due to El Niño.
El Niño is a naturally occurring phenomenon, but it’s coinciding with more extreme and hotter weather due to the impact of increasing greenhouse gas emissions on the climate. The global average temperature in September broke the heat record after the warmest Northern Hemisphere summer ever.
Persistent dry conditions may lead to more forest fires in South-East Asia in the coming weeks, according to Datuk Carl Bek-Nielsen, CEO of Malaysian oil palm planter United Plantations Bhd. “In situations like this, it’s simply inevitable,” he said earlier this month.
Australia expects El Niño to persist until at least the end of February, and ranchers are expected to prepare for the drier conditions by ramping up cow sales for slaughter. That’s weighed on the Eastern Young Cattle Indicator, a benchmark price, which recently tumbled to the lowest level in nine years.
Some crops do benefit from El Niño, such as almonds and avocados in California that get higher rains, but many food staples from rice, cocoa, sugar, wheat and palm oil tend to face more challenging growing conditions.
Meanwhile, India, the world’s top rice exporter, may extend an export levy on parboiled rice to control local prices ahead of key polls, keeping the market tight and raising the risk of higher global food inflation.
The government is considering an extension to a 20% export levy, which is due to expire on Oct 15, according to people familiar with the matter who asked not to be identified as the talks are confidential. There are no plans to raise the tax to 40%, as speculated by some market participants, they said.
India ramped up its export restrictions on rice in late July, seeking to keep a lid on domestic prices ahead of some state polls next month and a national election in early 2024. The curbs led to an Asian benchmark surging to the highest level in almost 15 years, although prices have cooled recently.
A spokesperson who represents India’s food and commerce ministries declined to comment. A Finance Ministry spokesperson didn’t immediately respond to a request for comment.
Prime Minister Narendra Modi will seek a third term in office at the election next year and the government he leads has also restricted exports of sugar and wheat, and is selling grains from state reserves. Retail prices of rice in Delhi have surged 22% from a year earlier, while wheat is about 12% more expensive, according to data compiled by the Food Ministry.
There are concerns that production of some crops, including sugar cane, could fall due to patchy rains in major growing areas the year. Cumulative rainfall during the June-September monsoon season was the weakest in five years.
Elevated rice prices could hurt billions of people across the globe as the grain accounts for as much as 60% of the total calorie intake for people in parts of South-East Asia and Africa. Many nations are still struggling to recover from the pandemic-led economic downturns.
India grows several varieties of rice, including parboiled, which accounts for about 30% of its total exports. The South Asian nation had a share of about 40% in the global trade in 2022-23.
Source: The Malayasian Reserve