A few significant developments have taken place in the global rice market over the last fortnight that the Indian government has to take note of and come up with policy actions immediately.

Despite various measures taken by the government to keep inflation under control, particularly in trying to curb the rise in foodgrain prices, there are concerns that the situation could turn out to be tricky over the next 3-4 months.

Lower output

There are a few reasons why such a situation could arise. First, this crop year to June will likely see a lower production of rice. On February 29, the Union Ministry of Agriculture and Farmers’ Welfare came up with the second advance estimate of various crops for the 2023-24 crop year. The estimate showed that rice production will be one per cent lower at 123.83 million tonnes (mt).

The projection does not include zaid (summer) crop production, which was 10.24 mt last year.

The rice trade, however, says cereal production could be at least 9-10 mt lower than government estimates. Also, it could be difficult for zaid production to top 10 mt again this year since the water level in reservoirs, particularly in the southern region, is worrisome.

Reservoirs’ storage

The second reason is the storage level in the 150 major reservoirs in the country has dropped sharply to 41 per cent of the 178.784 billion cubic metres capacity. Compared to last year, it is 42 percentage points lower and in terms of the last 10 years’ average, it is lower by 55 percentage points.

The storage in the southern region, where there is a good scope to grow zaid rice, is 26 per cent of the capacity. The level in nearly 10 reservoirs, most of them in the key rice-growing areas of Telangana, Andhra Pradesh and Karnataka, besides Tamil Nadu, is in single digits.

With no forecast of rain over the next few weeks and the temperature set to be above normal, the water level is expected to only drop further. This could mean that some of them could even go dry by the time the South-West monsoon sets in on June 1.

Though the El Nino weather pattern, which is the primary reason for deficient rainfall in the country since June 2023, is likely to dissipate by May-end, there is no word yet on when the monsoon will set in and how its behaviour will be this year. There is, however, some hope as the La Nina, which brings copious rains to India, is likely to re-emerge after June.

Be that is it may, the overall water situation will unlikely improve before June 1. This raises doubts if paddy will be sown on time this year or what farmers will prefer to do in the wake of empty reservoirs and low soil moisture, particularly in the South.

This then leads us to a scenario where the situation is unlikely to be clear at least until July-end.

FCI procurement

Third, the Food Corporation of India (FCI) has procured 44 mt of rice out of the Centre’s 111 mt estimate of the kharif rice production. The private sector has pegged the estimate at 104-105 mt, though. This means that the supply will be tight as the Centre has procured 40 per cent of the rice produced during the kharif season. The government has launched Bharat rice at ₹29 a kg only because the supply situation is tight.

The reason for the launch of Bharat rice is to bring down the price of rice, which has increased by 30 per cent over the past year. However, the efforts have brought down prices by about 10 per cent only.

After having managed to procure 44 mt, the FCI may be able to procure another 4-5 mt too, thus falling short of the Centre’s target of 53.43 mt. As the Centre supplies rice mainly for beneficiaries of the Prime Minister’s Anna Kalyan Yojana, it is a moot question if the stocks will be sufficient enough.

Exports down just 17%

In order to ensure food security and keep prices under control, the Centre has taken various measures since September 2022.

It first banned exports of broken rice and then imposed a 20 per cent duty on white rice.

Last year, it banned exports of white rice, levied a 20 per cent export duty on parboiled rice and fixed $950 a tonne as minimum export price for basmati shipments. Despite these measures, rice exports have dropped by only 17 per cent. This also gives rise to the suspicion that the Customs authorities have not been vigilant enough in preventing rice from leaving Indian shores in the garb of some other commodity.

Other developments

There are a couple of developments abroad too that need to be taken note of. Vietnam, the world’s third-largest export of rice, has begun to import rice besides planning to cut exports by at least one million tonnes. Farmers in Thailand have been asked not to grow off-season rice due to poor water availability. Bangkok, too, plans to lower its rice exports by at least 1.3 mt compared to that in 2023.

Only Pakistan seems to be comfortable exporting rice, though its stocks are limited. With the global rice market turning tight, the difference in parboiled rice prices between India, the most competitive country, and others such as Thailand and Pakistan has narrowed.

In these circumstances, the million dollar question is: How far will imposing export duty be effective? This requires immediate attention from the Indian government, which should look at various options to take stock of the emerging scenario.

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