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Indian Trade Restrictions Create 10 Million Tonne Hole in Global Rice Market

Source: McAlinden Research

August 18, 2023 ( Newswire) Rice futures recently jumped out to 15-year highs in Asia, following an expansion of India's halt on certain rice exports. India makes up 40% of the global rice trade, and with nearly half of its rice now on the market, other major exporters like Vietnam, Thailand, and Pakistan are picking up the slack. However, overwhelming international demand could eventually cause these countries to follow in India's footsteps, initiating trade restrictions in an effort to protect supplies in their own domestic markets.

Asian rice futures, represented by benchmark Thai white rice, surged to their highest level in 15 years last week as pressure on international markets continues to mount. An ongoing ban on broken rice exports out of India, now in place since September of last year, was expanded to cover non-basmati white rice on July 20, ratcheting up prices toward US$650 per ton.

Al-Jazeera notes that India is typically the world's biggest rice exporter, accounting for nearly 40.0% of the global rice trade in 2022, having exported 22 million tonnes. Non-basmati and broken rice accounted for roughly 43.2% of those exports, and the suspension of those shipments from India have left a hole of roughly 9.5 million - 10 million tonnes in global rice markets.

Unsurprisingly, this decline in global supplies has created a rush for rice among key importers like Indonesia, the Philippines, Nepal, Bangladesh, and several African nations. Asian exporters like Vietnam, Thailand, and Pakistan - each of which were the second, third, and fourth largest exporters after India in 2022, respectively - have rapidly negotiated vastly higher prices over the past month. Fragrant rice from Vietnam, for example, has been offered as high as US$700 a ton, despite prices renegotiated around US$580-US$630 a ton.

However, Bloomberg reports that attempts at stockpiling are now underway in some importing nations, which could create overwhelming demand and potentially endanger the domestic markets of exporters. Global prices have already risen by around 20% since India's ban. Reuters reports that a further 15% gain could trigger restrictions by Thailand and Vietnam, according to traders at international trading companies.

This would not be the first time that an Indian export ban on rice created cascading restrictions in its wake. In fact, the last time India did so, back in 2007-2008, Vietnam, Bangladesh, Egypt, Brazil, and several other smaller producers tightened their exports of rice as well. At the time, India's share of the global rice trade was roughly half of what it is today, but the ramifications of an export halt were still enough to send rice toward a record high above US$1,000 per ton.

Rice is an unmoving staple in the diets of more than 3.5 billion people, but reliance on the grain is becoming even greater recently, as the meteorological phenomenon known as El Niño is shifting ocean temperatures once again and scattering commercially important fish species away from their usual habitats. This has negatively impacted the yields of Asian fisheries, like those in Indonesia. That has made local diets more dependent on rice than usual.

Indonesia is itself a large producer of rice, but a growing number of farmers in the country are shifting their focus away from water-intensive rice crops in anticipation of an El Niño-induced dry spell. Bloomberg reports that Vietnam's rice exports to Indonesia have surged around 1,500% over the first seven months of 2023, compared with the same period last year. Earlier this year, Indonesia announced it would import 2 million tonnes of rice by December in a bid to replenish its emergency stocks.

In contrast to rapid appreciation in Asian markets, U.S. No. 2 rice futures, known as rough rice and traded in the Chicago Mercantile Exchange (CME), have remained well below a near two-year high reached in May. As of Wednesday morning, rough rice had declined by about -1.3% to US$15.56 per hundredweight since the start of August.

However, if persistent tightness in Asian markets is compounded by even more export restrictions among major exporters, pressure will likely begin rising once again in Western markets as well. It is also worth noting that soaring food prices in Asia and Africa could have a broad impact on economic growth and inflation data, as well as the resulting monetary policy decisions within many emerging market nations.

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