India: Rice exports

The erratic behaviour of the weather this year may impact India’s increasing prominence as a global rice exporter, as a weaker-than-expected southwest summer monsoon has led analysts to revise forecasts for production and export volumes.

On August 2, the Indian government declared a drought as monsoon rains were 14% below the long-term average. While the rains have since picked up, this still signals bad news for the country’s rice producers. As a result, the Food and Agriculture Organisation of the UN (FAO) slashed its estimate for the 2012-13 growing season by 9.8m tonnes to 147.7m tonnes of un-milled rice. This has led analysts to suggest that India may lose ground to other leading exporters and may even result in the government reintroducing limits or bans on exports.

“A number of importing countries looking toward India for more competitive prices are likely to shift to Thailand or Vietnam,” Abah Ofon, an agriculture analyst at Standard Chartered Bank, told Bloomberg. “If we see a drop in India’s rice output, it is not going to have a significant impact on global inventories. There may be slight moderation in exports.”

With irrigation covering less than 60% of the country’s rice crop, the monsoon rains are critical for maintaining India’s production levels. The government has managed to amass significant stockpiles of grains, with 30.7m tonnes of rice currently in reserve, suggesting that it has some leeway to limit the damage of any shortfall in the local market.

The greater concern for analysts is a drop in exports and the impact it may have on pricing. Harish Galipelli, the vice-president at Kochi-based JRG Wealth Management, told Bloomberg that a significant dip in production might lead the government to regulate exports in a bid to meet demand and control pricing in the domestic market. This would be a return to a policy implemented between 2007 and 2011 when the government banned the export of non-basmati rice.

However, the initial concerns over India’s rice harvest have diminished somewhat as the rain has increased during the late summer. In late September, Reuters reported that Sharad Pawar, the minister of agriculture, was predicting the output of summer planted grain, including rice, to total 117.18m tonnes, down 9.8% from 2011.

“There were uncertainties about the monsoon as rains were delayed," Pawar said. “As a result, our estimates may be lower than last year but they are better than expected. These are just preliminary estimates and I am confident that production will be substantially higher, as has been the case before.”

Nonetheless, the uncertainty surrounding the harvest, and the likely diminished output, has stalled the momentum picked up through a stellar 2011. Following the lifting of a ban on the export of non-basmati rice, Indian producers, armed with significant stockpiles, aggressively targeted new markets with ultra-competitive prices in 2011. Indeed, the country became the largest global rice exporter in 2011-12, exporting 10m tonnes (including 3.5m tonnes of basmati rice) and bolstering export revenues by more than 50% to Rp1.87bn ($34.89m).

These levels were achieved by capturing significant share from leading producers, such as Thailand and Vietnam. According to the Business Standard, Indian exports of non-basmati rice averaged between $360-450 per tonne in 2011, compared to $450-550 per tonne from Vietnam and $575 from Thailand. Indian exporters were also able to benefit from a Thai government subsidy for its domestic market, which pushed up the price of the Thai crop on the international market.

With these conditions unlikely to be similarly aligned this year, Indian producers are less likely to have the same price advantage, particularly considering the weaker supply. However, Pawar still estimated that exports would reach between 8m and 9m tonnes this year.

The issue for the country now will be maintaining and then bolstering output to remain among the leading exporters in the world. Pawar suggested that a “switch-on, switch-off” policy, under which exports were intermittently banned, damaged the country’s reputation and that it was now necessary to develop a long–term, import-export policy.

Indian producers will also have to address the long-term productivity of the crop. According to the 2011-12 Economic Survey of the Ministry of Finance, in the decade leading to the 2011-12 growing season, the growth in the rice yield was 1.68%, while the growth of land under rice was just 0.04%. The average rice yield in the country now stands at 2.2 tonnes per ha, compared to a global average of 2.7 tonnes, according to the Central Rice Research Institute of the Indian Council of Agricultural Research.

This suggests that much work still needs to be done to improve the sustainability of India’s rice-growing segment. While this year’s poor monsoon may have brought an abrupt halt to India’s triumphant return to the international rice market, it could yet provide a useful wake up call for the industry as a whole.