Rice might get pricier as erratic rains hold back sowing across states

• Low rainfall has started to have an impact on paddy sowing across key rice producing states in India.
• Only 866 lakh hectares of field has been sown this kharif season, representing a decline of 4 lakh hectares from last year.
• China, the largest rice producer in the world, is witnessing a sip in rice production too due to pest issues.

Rice may get even more expensive in the times to come as low rainfall has impacted paddy sowing in key rice producing Indian states like Uttar Pradesh, Bihar and West Bengal.

According to a recent report by Yes Bank, paddy sowing in India is now down by 13%. This could have global implications too as India is the second largest exporter of rice in the world. Overall, only 866 lakh hectares of field has been sown this kharif season, representing a dip of 4 lakh hectares from last year.

“Even as production trends in India and the globe need to be monitored, we do not think it is of a huge concern immediately and the government need not have to immediately consider clamping down on the exports of rice as they had done for wheat,” said Yes Bank.
Source: PIB, CEIC, Yes Bank Economics Research

There has been a global shortage of rice right now too due to adverse weather conditions across top rice suppliers in Asia. If the production of rice is impacted in India, it would lead to a limited export capacity for the country especially amid the supply chain disruptions caused by Russia-Ukraine war and climate change.

To draw a parallel, India had to stop all exports of the wheat staple this May to address shortages in the country. The ban reduced the price of wheat in India by at least 5% in the first 10 days, compared to the record high it reached at the start of May before the ban.

However, the ban did leave large importers of wheat like Bangladesh and UAE in a lurch.

Bangladesh decided to learn from the past and made some policy changes in the month of June to prevent this situation from happening again with another staple, rice. The country reduced its import duty and tariff to 25%, from the previous 62.5%, in June 2022 when India witnessed its first dip in paddy sowing. It also allowed the import of non-basmati rice till October 31.

The revised import policy had prompted more Indian traders to export rice out of India to clock in more income, which led to a 10% jump in rice prices in the first five days of the announcement.

According to media reports, rice prices in India have increased 30% since June. Now it is too

early to say whether rice can see the same trajectory as wheat, but their situation needs to be closely monitored.

“At the current juncture, procurements are proceeding smoothly while the FCI stocks are largely comfortable when compared to the buffer norms. Though not of an immediate concern, the evolving situation needs to be watched carefully,” Yes Bank said in its recent report.

It is important to note that 10 countries account for nearly 85% of the world’s rice production, with China and India being the top two producers. China has already witnessed a decline in rice yield due to pest issues, whereas other rice producing countries like Thailand and Vietnam have reported a decline in crop yields too along with increased cost of production.

“The shortfall in kharif sowing of paddy, however, needs to be watched closely, although buffer stocks are quite large. Household inflation expectations have eased, but they still remain elevated,” Shaktikanta Das, governor of the Reserve Bank of India, said earlier this month in his credit policy statement.

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