Tag: Rice Production

Food Inflation -- The Rice Factor

Food Inflation (II) – The Rice Factor

By Kunal Bose

Farmers are a major constituency for the government and they remain in protest mode asking for a better deal from the state. In this situation it will not be in order to expect import duty to be lowered, till at least parliamentary elections are over and a new government is formed in June.

At the same time, the government being engaged in taming food inflation is unlikely to signal resumption of wheat exports, a ban on which was put in May 2022. Wheat exports in 2021-22 (April to March) exceeded the target of 7m tonnes by 850,000 tonnes. Soon thereafter came the ban.

Deficiencies in crop estimates – in the present case it is over wheat crop of the 2023-24 season, the harvesting of which has begun – make taking decisions about food related trade policies difficult, says Dhanuka. This, however, should not be the case any longer with monitoring of crops from sowing to their different stages of growth being possible using satellites and drones. For the same reason of data related confusion, India’s neighbour Bangladesh with a population of 174.25m was not sure for a long time whether the production of rice this season has been enough to take care of domestic demand.

The question remains if the country is harvesting a lot more rice than local requirements then why should the cereal price be on an upswing, especially during the Ramadan month when most Muslims observe strict fasting from dawn to sunset.

Bangladesh Rice Research Institute (BRRI), an agriculture ministry outfit, has forecast a total of 41.2 million tonnes of rice is likely to be produced this year, including 20.9m tonnes of boro, 3m tonnes of aush and 17m tonnes of aman. Such a level of production should leave a surplus of 5m to 6m tonnes after meeting domestic demand of around 35m tonnes. The United States Department of Agriculture (USDA), however, says Bangladesh rice production of 36.3m tonnes will fall short of likely local consumption of 37.6m tonnes, leaving a deficit of 1.3m tonnes.

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Without going into the merits of which of the two agencies, BRRI or USDA, has done a better job of estimating 2023-24 rice output, the worrying development is rising rice prices. What is to be said in favour of Dhaka is that it has been quick in reworking the import duty and asking private agencies to import the sanctioned volume of grain. Moreover, it has begun a dialogue with New Delhi for import of rice and wheat and also three other commodities, namely, onion, ginger and garlic that hopefully will soon lead to the signing of memorandum of understanding. Though there is a ban on export of rice and wheat, New Delhi has supplied rice, wheat and onion to countries in the neighbourhood and also to “key partners” such as the UAE, Indonesia and Vietnam on a case to case basis.

The unusual dry weather is making Bangladesh, which is the world’s third largest producer of rice after China and India, harvest a crop that will fall short of local demand. Imports, therefore, is unavoidable. Recent price inflation notwithstanding, the country highly vulnerable to flooding has moved from recurrent food shortages to self-sufficiency. The flooding risk is because of its location in the Bengal delta and its low-lying flat topography, which is further compounded by several factors linked to climate change. Rising frequency of extreme precipitation events more erratic rainfall has made Bangladesh’s pursuit of green revolution highly challenging.

The country’s agricultural research organisations have, however, been able to develop high-yielding varieties of rice that will grow in conditions of salinity, submergence and extreme temperature. Observers of Bangladeshi economy attribute breakthroughs to other factors like availability of locally produced quality seeds and nutrients and an efficient extension programme designed to arm farmers, almost entirely small owning less than 3 hectares with ideal farming practices. The country in the meantime has graduated from “green revolution to gene revolution.” Once again thanks to research successes in developing HYV seeds, Bangladesh is also producing over a million tonnes of wheat.

FAO says in a report that in spite of the 2023-24 season having suffered La Nina related weather setbacks, “improvements in the relative profitability of rice cultivation have stimulated expansions in main-crop plantings in Asia, Africa and Northern America should help offset the negative impacts of the weather disruptions.” Based on this premise, FAO has forecast world rice production to rise 0.8% from the 2022-23 reduced harvest to 523.9m tonnes in 2023-24 season on a milled basis.

However, price rises both in domestic and international prices that will keep in check use of the grain both for animal feed and human consumption is to arrest rice use at 522m tonnes. International trade in rice in 2024 is forecast to remain close to the 2023 reduced level at 52.8m tonnes. Till there is a new government in June, India will not consider lifting ban on rice exports. But according to FAO: “Apart from Brazil, Uruguay and Viet Nam, most exporters are expected to raise their shipments” compensating for squeeze in supplies from India. Global rice stocks will be up to a record high of 198.9m tonnes. Thailand, a major producer and exporter of rice, is, however, to see fall in milled production to 20m tonnes in the 2023-24 marketing year from 20.909m tonnes a year earlier.

In the family of rice consisting of quite a few varieties, the long slender-grain aromatic basmati is the niche one that is sold at a high premium over the normal grain. Basmati rice too comes in several varieties. Grown principally in India and Pakistan and sold in the world market by them, basmati has got geographical indication (GI) tag, speaking for its exclusivity and integrity. Grown in the Indian subcontinent’s Himalayan region benefiting from its unique climatic and soil condition, distinctive qualities of the aromatic rice are gained by finely tuned cultivation and processing practices.

(This is the second article of a three-part series on the subject)

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Union Cabinet Free Fortified Rice 2028

Can Rice Export Ban Bring Down Prices?

By Kunal Bose

India will go to the polls between April and May 2024 to elect members of the 18th Lok Sabha, the lower house of Parliament. The National Democratic Alliance (NDA) government headed by Narendra Modi of the Hindu nationalist Bharatiya Janata Party (BJP) has to contend with anti-incumbency issue and more frighteningly the near whole host of opposition parties coming together under the acronym INDIA (Indian National Developmental Alliance) as it fights the 2024 Lok Sabha elections.

Odisha based Biju Janata Dal led by Naveen Patnaik is not, however, part of either of the two alliances, all its energies being directed at economic and social development of the resources rich coastal state. While Patnaik has never looked beyond the state boundaries for a national political role, Telengana chief minister K Chandrasekhar Rao and his party Bharat Rashtra Samithi though among the firsts to take the initiative to unite the opposition parties has stayed away from INDIA in view of the Congress being seen as his principal opponent in his home turf rather than BJP. Unlike Patnaik, Rao’s prime ministerial ambition has never been in doubt.

In a country like India or Bangladesh with countless number of poor people, food price inflation is highly dreaded by the incumbent party (or an alliance of parties) in power. Major price rises of food items, cereals, pulses, edible oils, dairy products et al have continued to push consumer price index and consumer food price index to levels to make the central bank (that is, the Reserve Bank) pursue tight monetary policy by keeping interest rates high.

This year the progress of the southwest monsoon – heavy rains and floods in some states and deficit in precipitation in some others – on which the fate of kharif crops, principally the staple in India rice, depends has remained the cause of concern. Unsure about the production of kharif rice but greatly worried about enragement of voters by high food prices, New Delhi put a ban on the export of non-basmati white rice effective July 20 in an attempt to ensure adequate domestic availability at reasonable prices.

Export ban move by the world’s largest exporter of the commodity has been triggered by over 30 per cent rise in its prices since October 2022. But no one is sure as to what extent the ban will help in driving down rice prices. Ahead of the recent ban on white rice, the government last year banned the export of broken rice and also imposed a supplemental tariff of 20 per cent on non-basmati rice exports. Incidentally, the duty did not in any way leave an impact on global demand for Indian rice. Proving the point, India’s rice exports in the calendar year 2022 were an impressive 22.3 million tonnes, accounting for around 40 per cent of global trade by volume. Indian rice is exported to over 140 countries, including many poor countries such as in Africa and nearer home Sri Lanka, Bangladesh and Nepal.

According to the UN Food and Agriculture Organisation, the global rice price index was up 14 per cent in the year to June. Referring to the steep rise in FAO index, now at its highest since the 2008 food crisis, The Economist says, what has happened “is mostly because of climate related supply concerns that have also pushed up the prices of other foods. Rice is especially vulnerable to El Nino, the weather pattern that brings hotter temperatures and drier conditions to Asia.”

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Take China, soil moisture in the country’s rice growing centres has hit the lowest point in over a decade, thanks to scanty rainfall and heat wave. Anticipating tight supply on weather driven setback in production, the major rice consuming countries from China to Indonesia started stocking up early. Vietnam and Thailand are stretched to the maximum to meet import demand. India being such a major supplier of white rice constituting nearly half of its total exports, including the long-grained fragrant Basmati grain, its export ban decision could only fan price rises in the world market.

Whatever happens to global rice prices, Indian wheat and rice stocks in the central pool are well above the mandatory norm. According to the food ministry, the country with combined wheat (31.2 million tonnes) and rice (26.7 million tonnes) stocks of 57.9 million tonnes in June is in a “comfortable position” to meet its requirements of food grains. In any case, under New Delhi’s Pradhan Mantri Garib Kalyan Anna Yojana, 80 crore poor people are to get free food grains till 2023 end. The states also support the poor with free or highly subsidised food ration. Without this kind of support the poor who lost their livelihood due to near total shutdown of economic activities during Covid 19 would have perished. Many economists have for long recommended that instead of letting food grains rot in covered godowns with many requiring immediate repair, these should be given away to the poor free of cost.

While it is too early to make a forecast of this year’s kharif rice crop even though the sown area so far is up over 2 per cent on 2022, the country has the comfort of a record food grain harvest of 330.5 million tonnes during the 2022-23 season, including rice production of 135.5 million tonnes, up 6 million tonnes over last time.

A good harvest followed by adequate procurement is considered to be an insurance against food price inflation, providing food security for the masses. But as it has turned out, food in India continues to become more and more expensive. FMCG companies with large portfolios of food products buy large quantities of wheat, corn, sugar, spices, etcetera, for processing and they are always among the best watchers of future behaviour of food prices.

Talking about the likely trend in food prices, Nestle India chairman Suresh Narayan said the other day: “Headline inflation has been under control, but food inflation will continue to wobble for a while not just because of expectations on crops but also climate. The kind of rains we are seeing, what impact this will have on winter crops is anybody’s guess. So food inflation will stay, it’s not something we can wish away quickly.” Other FMCG groups such as Hindustan Unilever and ITC are also bracing themselves to face further food inflation that may dent demand and their profit margins.