Rising Tide of Rice Prices: See-through the Factors Behind the Cost Surge

Web DeskJuly 7, 2023

Global rice prices have reached an 11-year high, and the trend is set to continue due to several factors. India, the largest exporter of rice, has increased payments to farmers, leading to higher prices. Additionally, the looming threat of El Nino poses challenges to rice yields in key producing regions, while the rising costs of alternative staple foods further impact Asian and African countries.

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India’s significant role in the rice market, accounting for over 40% of world rice exports, means that any decrease in shipments due to low inventories will contribute to the already rising food prices caused by factors like Russia’s invasion of Ukraine and unpredictable weather conditions.

B.V. Krishna Rao, President of the Rice Exporters Association, explains that India was previously the most affordable rice supplier. However, as Indian prices rose due to the new minimum support price, other suppliers followed suit in increasing their prices.

Rice is a staple food for billions of people, with Asia producing nearly 90% of the water-intensive crop. The El Nino weather pattern, known for causing reduced rainfall, poses an additional threat to rice production. Despite the US Department of Agriculture’s forecast for near-record output from top global producers, including Bangladesh, China, India, Indonesia, Thailand, and Vietnam, the global rice price index remains at an 11-year high.

The price of Indian rice exports has surged to a five-year high, with recent government incentives aimed at farmers’ votes in key state and general elections. Export prices in Thailand and Vietnam have also reached two-year highs since the Indian incentives were introduced.

Although a strong Asian crop is anticipated, trading houses expect El Nino to impact the output of major rice producers, potentially leading to price rallies. Global rice inventories are projected to drop to a six-year low by the end of 2023/24, driven by decreasing stocks in China and India, coupled with rising demand.

Experts suggest that if yields sharply decline due to El Nino, prices could rise by a fifth or more. For instance, Thailand has already urged farmers to plant only one rice crop due to below-normal rainfall. In India, a slower start to planting and reduced rainfall are concerning factors for Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) ahead of elections, potentially leading to further export restrictions.

Restrictions on Indian rice exports would pose challenges for other countries seeking to fulfill their supply needs. Myanmar, Pakistan, Thailand, and Vietnam might increase exports by 3 to 4 million metric tons collectively to compensate, according to industry officials.

The surge in rice prices also complicates efforts to build up stockpiles. While African countries, sensitive to price changes, have slowed their demand, Asian buyers like Indonesia and the Philippines have been actively increasing their purchases from traditional supplier Vietnam. Additionally, Indonesia recently signed an agreement with India to import 1 million tons of rice in the event of El Nino disruptions to domestic supply.

The rice market, once considered a buyers’ market, could shift towards becoming a sellers’ market if El Nino adversely affects production, warns a Singapore-based dealer.

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