Global rice markets face stresses from El Niño, India export restrictions

On July 20, India banned exports of non-basmati price (covered in our blog post of July 25)—aiming to cool rising domestic prices—a move many feared would drive rising global prices higher. Since then, that trend has continued: The benchmark Thai rice price has risen 14%, Viet Nam rice prices are up 22%, and India white rice prices are up 12% (Figure 1). In August, in an effort to prevent exporters from undermining the ban, India put a surcharge of 20% on exports of parboiled rice and instituted a minimum sales price for basmati rice.

Figure 1

India’s actions have had impacts around the world. The ban has caused panic buying of rice in Canada and U.S. grocery stores. At the end of August, Myanmar, the world’s fifth largest rice exporter, announced that it too would ban rice exports for 45 days. On September 1, the Philippines put price ceilings in place to cap retail rice prices. On a more positive note, at an August meeting of ASEAN countries, leaders committed to keep the flow of agricultural products unimpeded and refrain from using “unjustified” trade barriers.

Meanwhile, a strengthening El Niño in the Pacific threatens to cut rice production of key Asian suppliers and push prices sharply higher.

This post provides a brief update on this apparently worsening global rice situation.

Global rice prospects

Much of the concern right now over rice markets in the coming months is based on predictions of a strengthening El Niño and potential impacts on rice yields in South and Southeast Asia. Those regions account for about 58% of global rice production and 80% of global rice exports. El Niño is anticipated to continue through the Northern Hemisphere winter (with greater than a 95% chance through January-March 2024). The odds of at least a “strong” El Niño (>1.5°C for the November-January seasonal average) have increased to 71%.

However, a strong El Niño does not necessarily equate to large production declines. Figure 2 shows rice production in South and Southeast Asia during previous El Niño years since 2000. Relatively large production declines occurred in 2002/03 and 2009/10 (moderate El Niño years) and in 2015/16 (strong El Niño year), and these also varied by region.

Figure 2

Thus, a production shortfall is far from a certainty. For example, as we saw in El Niño years like 2018-19, production levels could be relatively unaffected. To date, production forecasts by the U.S. Department of Agriculture, the International Grains Council and the Agricultural Market Information System all suggest a small increase in global rice production, but those forecasts could change in the coming months when more is known about the size of the crop, particularly if the monsoons end earlier than normal.

Export restrictions imposed by India and others

India’s recent series of export restrictions began on September 9, 2022 with a 20% export levy on unmilled rice and husked brown rice, along with a ban on broken rice (see table). Yet international impacts were limited. The Russia-Ukraine war, which began in February 2022, didn’t directly affect the global rice trade, and rice prices remained relatively calm throughout the year. Despite its new restrictions, India exported a record amount of rice in 2022, 22.3 million metric tons (MT).

With the recent July and August restrictions, however, now seemingly all rice exported by India is subject to some form of official limitation. Based on 2022 trade levels, the ban on broken rice exports could affect as much 3.9 million MT or more. Similarly, the ban on non-basmati rice exports (excluding parboiled rice) could affect more than 6 million MT based on 2022 levels. Together, those bans would impact almost 45% of India's rice exports.

The recent export restrictions on basmati and parboiled white rice will also likely reduce trade (though with less effect than a prohibitive ban). Parboiled rice exports totaled 7.5 million MT in 2022; now they will face a supplemental tariff of 20%. Likewise, the decision to implement a minimum export price for basmati rice will likely have a minimal impact on basmati exports (about 4.4 million MT in 2022) but will prevent lower-priced non-basmati rice from being illegally exported as basmati rice.

Table

Who is most affected by the export bans on non-basmati and broken rice? Figures 3 and 4 show the countries importing these two varieties of rice at varying amounts from India.

A total of 15 countries imported more than 100,000 MT of non-basmati rice (excluding parboiled rice) from India in 2022, including nine in sub-Saharan Africa (Madagascar, Benin, Angola, Kenya, Côte d’Ivoire, Cameron, Mozambique, Togo, and Guinea) (Figure 3). Notably, many of these countries are net rice importing countries or produce significant amounts of rice (and import to supplement supplies of an important staple), and together they imported 55% of total non-basmati rice exported by India, equivalent to 3.3 million tons. This implies potential food security risks for millions of people in Africa, as importers will otherwise have to look for alternative suppliers such as Thailand, Vietnam, Pakistan, Myanmar, or the United States, and prices will be higher. India typically exports larger quantities of non-basmati rice to Asian markets as well, notably Nepal, Viet Nam, Malaysia, United Arab Emirates, and Sri Lanka, among others.

Figure 3

Compared to the non-basmati rice restrictions, the ban on broken rice seems to have a less severe impact on food security (Figure 4). In 2022 India exported a total amount of 3.9 million MT of broken rice, of which 1.9 million MT was imported by China for use as animal feed. An additional 1 million MT was imported by Senegal, where it is an important food staple. Other top importers include Viet Nam, Indonesia, Djiboti, and Côte d'Ivoire. These large six importers together account for 92% of total broken rice imports from India in 2022.

Figure 4

One of the concerns raised in our post of July 25 was whether other rice exporters would follow India's lead and institute bans on rice exports. To date, Myanmar’s 45-day ban is the only such action, and the time limit suggests that exports will resume with the upcoming harvest. Myanmar exported 2.1 million MT of rice in 2022 (about 5% of global rice trade).

In 2007/08, the rice market was roiled by export restrictions by several large exporters including Thailand, Vietnam, and Pakistan (and India as well). Thus far, none of these suppliers have implemented bans. The August agreement by ASEAN leaders to refrain from restrictive trade policies is also significant, and included a pledge to use the ASEAN Plus Three Emergency Rice Reserve (APTERR) to stabilize markets. On paper, earmarked APTERR reserves total less than 800,000 MT, most of which are held by China, Japan, and South Korea.

Consumers facing higher rice prices

Even prior to India’s export ban announcement, retail rice prices had soared over the past 12 months in many countries (Figure 5). Higher rice commodity prices will likely keep retail rice prices high for the foreseeable future. As previous have observed, post-farm gate costs (for example, of milling and processing, shipping, packaging) often dominate the retail price of food items like rice; these too are maintaining upward pressure on prices.

Figure 5

In an attempt to contain consumer price increases, the Philippines has placed a cap on retail rice prices. Almost 90% of the Philippines' rice imports come from Viet Nam, where rice export prices have increased 36% since January 1 (with most of that increase occurring since late July following India's announced export ban). Price controls often lead to inefficiencies in the market as retailers refuse to sell at capped prices which can lead to shortages or rice being diverted to black market sales. Domestic producers are hurt by price caps as well because they are unable to receive market prices for their products.

Conclusions

The next two or three months will bring more clarity to the rice market, as we will have a better sense of the impact of El Niño on rice yields. Export restrictions, price controls, and other government interference in markets will only exacerbate market shortages and could lead, as they did in 2007/08, to increased price volatility and price spikes. Such actions make a bad situation far worse, one which will largely be borne by poor rice-consuming households in Asia and Africa.

Joseph Glauber is a Senior Research Fellow with IFPRI's Markets, Trade, and Institutions (MTI) Unit; Abdullah Mamun is an MTI Senior Research Analyst. Opinions are the authors'.

On September 28, 2024, India lifted its export restrictions on non-basmati white rice, setting a minimum export price of $490 per tonne.