India emerged the world’s largest rice exporter in 2011-12, displacing Thailand from its leadership position. Two factors played a role in this. The first was the government’s decision in February 2011 to lift a four-year ban on exports of non-basmati varieties of rice, paving the way for a rise in exports of those varieties.
The second was a decision of the then Thai government under Prime Minister Yingluck Shinawatra, taken in the same year, to favour farmers by strengthening a Rice Pledging Scheme under which it promised to procure unlimited stocks at an enhanced price that reflected a 50 per cent increase over 2010. The consequent increase in domestic prices obviously reduced the incentive to sell in export markets rather than to the government or in the local market. India was a major beneficiary, recording a sharp increase in exports of non-basmati varieties. As opposed to exports of around 1,00,000 tonnes of those varieties in 2010-11, exports soared to 4 million tonnes in 2011-12. Exports of basmati rice in those two years stood at 2.3 and 3.2 million tonnes respectively (Chart 1).
Non-basmati surge
Given the circumstances, the Indian rise to dominance in global rice markets is explained without much difficulty. What is striking, however, is the continuous increase in exports of non-basmati varieties since then, to 8.2 million tonnes in 2014-15, and after a fall to 6.4 million tonnes in the subsequent year, a rise again to 8.6 million tonnes in 2017-18. The result has been that despite the significant price difference between basmati and non-basmati rice varieties, the difference in foreign exchange earned from exports of these varieties has narrowed considerably (Chart 2).
The increase in non-basmati exports occurred despite the fact that the enhanced pledging scheme in Thailand was suspended in early 2014, that production in India did not rise much till 2016-17, having fluctuated between 104 and 107 million tonnes between 2011-12 and 2015-16, before rising to 110 and 113 million tonnes in the next two years, and that Vietnam has been a third important player in world markets.
India’s share in world exports in recent years (2014-18) has stayed at 25-26 per cent, Thailand’s has fluctuated between 22 and 25 per cent, and Vietnam’s between 13 and 16 per cent. As a result, the exports to production ratio for rice in India rose from 2.4 per cent in 2009-10 to 6.8 per cent in 2011-12 and 9.6 per cent in 2012-13, after which it has fluctuated between 9.9 and 11.3 per cent.
In normal circumstances, this should have resulted in a degree of price buoyancy in domestic markets, and discouraged exports. But the incentive to export seems to have remained high and persistent.
What this suggests is that over a relatively long period domestic demand for rice has remained below domestic availability, even after taking rising export ratios into account. This is surprising, because procurement introduces an ‘exogenous’ player in the form of the government into the market. Government procurement fluctuated between 32 and 35 million tonnes between 2011-12 and 2015-16, before rising to 38 million tonnes in the following two years when production was also rising.
The minimum support price (MSP) (adjusted for the paddy to rice conversion) at which rice was procured by the government, presumably setting a floor to market prices, rose over time but remained consistently below the export price for Grade A rice from India until mid-2015 (Chart 3). The recent sharper rise in MSP has more or less brought it to par. So rather than the procurement price, it may be the quantum of procurement that has been kept at levels that have not affected the incentive to export rice.
This limited effect of procurement on the incentive to export is reflected in the relationship between the export price and wholesale prices in three metro cities, for example. As Chart 4 shows, wholesale prices have more or less matched the export price in Delhi and Mumbai, though the wholesale price in Chennai is afflicted by unusual volatility that needs a separate explanation.
Going by this trend, it appears that after non-basmati exports were liberalised, the international price has set the range of domestic prices, resulting in an implicit calibration of domestic prices with border prices.
Subdued domestic demand
Once again this suggests that domestic demand for rice has remained below domestic availability, despite the rising share of exports to domestic production. This subdued demand hits farmers, who find cultivation increasingly unviable despite rising rice exports.
Moreover, the benefit of a “disciplining” international price does not seem to have accrued to consumers. Retail prices in all metropolitan cities have remained well above the export price (Chart 5), showing high and rising distribution margins.
So the liberalisation of the rice trade seems to have benefited only one section, the merchant capitalists, and not the actual producers or consumers.