Weather and politics keep pressure on price of rice

• Rice prices around 15-year high
• India may ease export embargo
• GCC is major importer

The status of rice as a global food staple means that it is also a political minefield for producer nations. So all eyes are on India as rice prices fluctuate at around a 15-year high. 

Different varietals and markets command different prices, but trading on “contracts for difference”, which track benchmark prices, saw the cost of a hundredweight of rice reach $18 in late June, up from around $15 this time last year.

In the short term there is little sign of those prices coming down. Uncertain weather and an Indian export embargo in place since last July are unsettling the market.

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Much of the focus now is on Narendra Modi’s incoming government in New Delhi where there is speculation that India may ease restrictions.

Reading the room on this is, however, fraught. The lifting of the Indian export embargo depends on volatile weather charts.

“Until there’s more clarity on monsoon progress and the main crop planting, most people in the market don’t expect any review of export policies,” Paul Sandell at S&P EMEA told AGBI. 

That means a 5kg bag of basmati rice – the Gulf’s favourite variety – is likely to stay at around $10 in the UAE’s supermarkets for some time to come – a cost that would be higher without government price controls.

Adnan Abidi/Reuters

While in recent times the hot, dry El Niño weather effect has impacted crops around the world, that is now transitioning into La Niña, its wetter, colder sister.

“There tends to be an increase in crops with La Niña while El Niño can badly impact production,” Bhavik Mehta, deputy head of research at Century Financial, said. However, “The climatic pattern is currently very erratic.”

Asia, where 90 percent of the world’s rice is produced and consumed, according to the UN’s Food and Agriculture Organisation, is particularly impacted by these weather events.

S&P Global report that China was the world’s largest grower of rice in 2023, producing a total of 145 million metric tonnes (MT) – 28 percent of the global total. This was followed by India, with 137 million MT – 26 percent of global production – and Bangladesh, with 37 million MT accounting for 7 percent.

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Much of China’s production is consumed domestically, however, as is that of Bangladesh. 

This leaves India as the number one rice exporter. Despite the export embargoes which the Indian government introduced in July 2023, India was still responsible for around 30 percent of global rice exports last year. 

Other major exporters include Thailand, Vietnam, Pakistan and the US.

In recent years about 15-20 percent of rice exports from India have gone to the Gulf Cooperation Council (GCC) countries, with the UAE and Saudi Arabia major markets. 

“With the majority of the population in the Gulf being of Asian origin, rice is a key item in the local food basket,” Mehta said.

Export ban

In 2023 El Niño arrived early, impacting crops. The Indian government reacted by banning exports of non-basmati white rice and imposing a 20 percent export tax on parboiled rice. A minimum export price for basmati rice was also set, at $1,200 per MT.

However, the arrival of El Niño highlighted other concerns in New Delhi, too.

“In India, rice is a hot political issue,” Mehta said. 

A shortfall in production can be devastating in a country in which, according to the United Nations, 195 million people are under-nourished. 

At the same time, India’s population of 1.4 billion is growing fast. 

Thirteen million people – more than the entire population of the UAE – were born in India in the last 12 months alone, according to UN data. 

Ensuring the food security of this rising domestic population is therefore a government priority. With general elections then on the horizon, the government imposed export controls last summer to guarantee prices for local farmers, a powerful political constituency.

“Rice prices rose globally after that,” Sandell said. New Delhi’s intervention removed 9 million MT from the global market, sending prices rising around the world and triggering the introduction of price caps from the Philippines to the UAE.

Uncertain forecast

Importers such as the GCC have responded to this by seeking new sources of supply. This has helped some new contenders in the export market.

“Exports from Thailand, Vietnam and Pakistan saw a significant increase after India’s export restrictions,” Sandell said. Pakistan’s rice exports, for example, hit a record high of nearly 6 million MT in the first 11 months of the financial year 2023-24, he said.

India has also continued to export some non-basmati white, despite the ban. This has been facilitated by government-to-government deals.

What happens next, though, is uncertain. 

“If there’s a good rain forecast, we may see the Indian policy get less restrictive,” says Mehta. 

India’s Meteorological Department forecast above-normal levels of rainfall for the June-September monsoon season back in May. Yet June so far has had less than normal rainfall.

In any case, “the new Indian government is unlikely to reverse the rice export at once,” said Sandell. “Even if the policy stance is to be softened, it is more likely to be staggered.”