BAN ON RICE EXPORTS BY INDIAN GOVERNMENT SHAKES BUSINESS LANDSCAPE

BAN ON RICE EXPORTS SHAKES BUSINESS LANDSCAPE

In a surprising turn of events, the Government's decision to impose a prohibition on the export of seven million tons of rice has reverberated through the global market. This move is expected to trigger an abnormal increase in rice and wheat prices worldwide. The Directorate General of Foreign Trade (DGFT) issued a notification on July 20, 2023, announcing the ban on various non-basmati rice varieties. This decision has sent shockwaves across the Indian rice export industry and has caught the attention of importing nations worldwide.

However, the rationale behind this decision seems puzzling, given the publicly available data on rice production. It remains unclear what privileged information the Government possesses that has not been shared with the public or the exporting community.

According to the latest report from the Commission for Agricultural Costs and Prices (CACP) on the Kharif crop, rice production is projected to reach approximately 131 million tonnes. The Food Corporation of India (FCI) estimates the total rice supply to be around 40.6 million tonnes as of July 1, 2023, surpassing the stocking norms of 13.54 million tonnes for the Central Pool. This surplus stock could lead to higher storage and financing costs, ultimately resulting in increased food subsidy expenditures.

Interestingly, the root cause of this prohibition may not be a shortage of rice but rather a downward trend in surplus stocks of wheat. Graphs depicting the availability of rice and wheat stocks in comparison to buffer norms could provide insight into the motivation behind the ban. Speculatively, the Government may be aiming to preserve rice as a potential substitute for wheat during periods of wheat scarcity.

However, the prohibition of Non-Basmati Rice (NBR) might not effectively address the challenges of availability and inflation in the domestic grain market. This restriction indicates a shortage of both these essential grains within the country, consequently promoting the hoarding of wheat and drivingup domestic wheat prices. Simultaneously, the international rice market is likely to witness an abnormal price surge, intensifying the wheat market's volatility, particularly in the context of the Ukraine-Russia conflict.

The announcement of this prohibition has already triggered a substantial increase in the prices of various rice grades, with Thailand, Vietnam, and Myanmar experiencing a surge of $50 to $100 per metric ton. This trend is anticipated to continue in the near future. Notably, India's previous ban on Non-Basmati Rice exports in April 2008 catapulted international rice prices to a staggering $1000 per metric ton fob, a surge that only subsided in September 2011 when the prohibition was lifted. The recent International Grain Council graphic indicates a price escalation of about 50% in Thai and Vietnam values of rice. Indian quotes are unavailable for obvious reasons.

The associated costs could be considerably elevated if India is compelled to import wheat with reduced duties, whether through private channels or other means. The volatility in US SRW wheat values is equally more than 50%. 

Consequently, the ban on NBR should not be regarded as a viable strategy to address the potential speculative scarcity of wheat. The fundamental question arises: why impose punitive measures on rice and rice exporters due to speculative concerns? Factors like El Nino and unexpected rainfall patterns during the Rabi season are acts of nature beyond prediction. While it is advisable to exercise caution, it is equally important not to undermine the existing economic activities through such measures.

MAJOR RICE EXPORTING NATIONS  (QTY IN 000 METRIC TONS )

India has consistently played the role of rice exporter, contributing approximately 17 million tons of Non-Basmati rice (including white, parboiled, and brokens) as well as 4 million tons of Basmati rice, totaling 21 million tons during the 2021-22 period, to the global market of approximately 55 million tons. This significant volume represents a substantial 38% share in the global export market and translates to foreign exchange earnings of around Rs 73,000 crores or nearly $9 billion dollars. Given this robust track record, it raises the question of why the Government is signaling a potential scarcity of rice within the country and globally, despite no actual shortage being evident.

 THE PRIMARY RICE-PRODUCING STATES IN INDIA

India boasts 11 significant rice-producing states, namely Punjab, Haryana, Odisha, Bihar, Chhattisgarh, Telangana, Uttarakhand, West Bengal, Uttar Pradesh, Madhya Pradesh, and Andhra Pradesh. This collective effort ensures a consistent abundance of rice within the nation. Despite wheat cultivation being concentrated in Punjab, Haryana, Rajasthan, Uttar Pradesh, Bihar, and Madhya Pradesh, the substantial surplus of rice raises questions about the rationale behind the current ban. Instead, this ban could potentially convey a message of wheat hoarding within trade circles, thereby inducing inflationary pressures.

ADVERSE CONSEQUENCES OF THE BAN:

 

1.       Loss of approximately 7 million tons of white rice in export volume.

2.       Foregone foreign exchange earnings amounting to nearly $3 billion.

3.       Erosion of reputation among foreign markets established by Indian rice exporters.

4.       Diminished investments due to stock holdings by exporters in key port towns like Vizag, Kakinada, and Kandla.

5.       Financial strain on committed millers in Chhattisgarh, Telangana, and Andhra Pradesh, impacting export-oriented production and the realization of premium prices. This, in turn, could lead to repercussions across labor-intensive sectors such as packaging, transportation, and warehousing.

 

REMEDIAL SUGGESTIONS

Throughout the span of a decade or even longer, Indian exporters have taken significant leaps forward in advancing the reputation of non-basmati rice originating from India, particularly within African markets and extending beyond. A considerable number among them have effectively introduced their own distinctive brands and have set up well-organized warehousing infrastructures across diverse African nations. Abruptly halting rice exports could potentially undermine the extensive effort invested over the years, providing an opportunity for our rivals to regain the influential position that Indian exporters have assiduously nurtured.

1. Preserving Export Continuity:

A prudent step forward entails maintaining a certain level of export continuity, demonstrating a balanced approach to potential supply concerns.

2. Alternative Measures for Supply Assurance:

Considering persistent worries about supply shortages, the Government could explore alternatives such as quantitative or qualitative restrictions, instead of an outright ban.

3. Safeguarding Premium Exports:

Preserving the export of premium-grade rice protects the substantial investments made by exporters in branding and packaging, preventing irrevocable losses.

4. Setting Minimum Export Price:

Aligning with international rates for premium rice varieties, a minimum export price akin to major competitors like Thailand and Vietnam could offer a viable resolution.

5. Controlled Distribution via Open Tender:

A controlled strategy could involve imposing quantitative restrictions and allowing limited exports through an open tender or bidding process.

6. Inclusive Participation and Allocation:

Enabling all exporters to participate and bid for specific quantities, with set parameters like a minimum lot size of 5000 metric tons and a maximum of 50000 metric tons per trader.

7. Prioritizing Highest Bidders:

Allocation of distribution to the highest bidders in descending order, aligning with their bid quantities.

8. A Balanced Approach for Progress:

In conclusion, recognizing the validity of the Government's concerns, a blanket ban on non-basmati white rice exports may counteract progress achieved over the years by Indian exporters.

9. Consideration for All Stakeholders:

Embracing a more balanced and controlled approach, taking into account the investments and endeavors of exporters, could lead to a more favorable outcome for all stakeholders.