Derivatives

The pressure builds on rice

G Chandrashekhar | Updated on July 06, 2014

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As Indian consumption rises, the cereal available for exports may shrink

For millennia, rice has been an integral part of the cuisine across Asian nations. China (140 million tonnes) and India (105 million tonnes) are two of the world’s largest producers of rice followed at a distance by Bangladesh, Indonesia, Vietnam, Thailand, the Philippines and Pakistan. Major exporters include Thailand, India, Vietnam and Pakistan while major importers include China, Iran, Indonesia, the Philippines, Saudi Arabia and several African countries.

While rice production and consumption for 2013-14 are expected to be balanced, world rice trade is forecast to be up by 5 per cent to a new high of 40 million tonnes in 2014 as large and competitively-priced supplies boost buying interest among key Asian importers. Market participants believe that traditional importers will step up purchases; the prices of Indica (long-grain non-sticky) varieties have been sliding and buyers need to replenish thinning stocks.

Even though overall supplies are expected to tighten ahead of the next harvest, supplies in the top exporting countries (India, Thailand) remain comfortable.

One risk to the comfortable supply scenario is the threat of El Nino event in the second half of this year. At this point of time, the timing and intensity of El Nino event is unclear. Importers may scurry to cover their needs for forward positions. In this event, prices will face an upward pressure, although harvests from September onwards may somewhat dampen the sentiment. World production prospects in 2014-15 are currently clouded by the risk of El Nino in Asia, the rice hub.

Impact of policies

Government policies also need to be monitored, especially in Thailand, for government decisions to support the rice sector and the pace of stock disposal.

Liquidation of public stocks in Thailand over the last three months has already softened the export market prices; and the country may be able to capture a substantial part of the incremental export trade in 2014. Vietnam may also be able to expand export sales.

This can potentially affect the volume of India’s rice shipments during the year. In 2012 and 2013, India was the world’s top exporter with shipment volumes close to 10 million tonnes. That position may perhaps not be sustained this year.

The new Government is concerned about food inflation and has announced a series of measures to contain price, rise including sale of five million tonnes of rice to augment availability and contain food inflation.

However, details of pricing and marketing plan are not available as yet. Export of basmati rice is expected to continue unhampered. Looking ahead, global rice production is expected to continue rising over the next five years but at a decreasing rate.

While China’s share in global production and consumption may decrease, Indian consumption over the next five years is expected to expand robustly, especially in the context of the food security law that envisages sale of rice at highly subsidised rates to a majority of the population. The law is expected to be implemented progressively.

In that case, production growth needs to catch up with consumption. Availability for exports may tighten. Land constraints, water shortage and climate change are likely to impact rice cultivation and these negative factors need to be addressed with urgency.

For 2014-15, the Ministry of Agriculture has set a production target of 106 million tonnes comprising 92 million tonnes of kharif and the rest rabi rice. Delayed and weak onset of monsoon as well as tardy progress the whole of June this year may negatively affect paddy cultivation although the shortfall is not quantifiable at the moment.

Published on July 06, 2014

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