India, accounting for over 40% of the world’s rice exports, significantly shapes global rice prices.
Global rice prices have surged to their highest level in 11 years, and industry experts predict that the rally will continue due to a confluence of factors affecting supply and demand. The recent move by India to boost payments to farmers has contributed to the price increase, coinciding with concerns over potential yield disruptions from the El Nino weather pattern in key-rice producing regions. Additionally, rising costs of alternative staples in impoverished regions of Asia and Africa have exacerbated the situation, further driving up global rice prices.
India, accounting for over 40% of the world’s rice exports, significantly shapes global rice prices. The country’s low inventories mean that any reduction in rice shipments will have a direct impact on food prices already influenced by Russia’s invasion of Ukraine and unpredictable weather patterns. B.V. Krishna Rao, president of the Rice Exporters Association, explains, “As Indian prices moved up because of the new minimum support price, other suppliers also started raising prices.”
Rice serves as a staple food for more than 3 billion people, and nearly 90% of the water-intensive crop is produced in Asia. However, even before the potential disruptions caused by El Nino, the global rice price index, compiled by the Food and Agriculture Organization, is already hovering above an 11-year high. This trend persists despite the U.S. Department of Agriculture’s forecast of near-record rice output from major producers such as Bangladesh, China, India, Indonesia, Thailand, and Vietnam.
Nitin Gupta, Vice President of Olam India’s rice business, emphasizes that the impact of El Nino is not limited to a single country and can affect rice production and rice prices across multiple nations. The price of Indian rice exports has already surged by 9%, reaching a five-year high, following a 7% increase in the government’s price paid to farmers for new-season common rice. Similarly, export prices in Thailand and Vietnam have soared to over two-year highs since the implementation of incentives aimed at securing votes from farmers during key Indian state and general elections.
The recent surge in rice prices adds to the challenges faced by the global food industry, as prices of sugar, meat, and eggs have also soared due to reduced exports aimed at mitigating domestic costs. Despite the forecast of a robust Asian rice crop, major trading houses anticipate that El Nino could hinder output in key-rice producing countries, further exacerbating the limited supply, and driving prices higher. “Rice prices have already been rising due to limited supplies,” states Nitin Gupta of Olam. “If production decreases, there will be a rally in prices.”
According to the U.S. Department of Agriculture, global rice inventories are projected to decline to a six-year low of 170.2 million tonnes by the end of the 2023/24 season, primarily due to reduced stocks in China and India. The rising demand of recent years, coupled with these declining inventories, suggests an imminent price surge. Experts estimate that prices could increase by a fifth or more if there is a sharp drop in yields. This scenario seems likely as El Nino threatens to impact the second rice crop in most Asian countries, leading to lower-than-normal production.
The potential price increase is not without consequences. Governments worldwide are facing the challenge of building up stockpiles while simultaneously grappling with the impact of rising food inflation. African countries, sensitive to price fluctuations, have slowed their demand, while some Asian buyers like Indonesia and the Philippines have been increasing their rice purchases from Vietnam. However, if El Nino disrupts production on a significant scale, the rice market could shift from a buyers’ market to a sellers’ market. This transition would further complicate the task of stockpiling and meeting global demand.
The combination of India’s increased payments to farmers, the looming threat of El Nino, and the supply-demand dynamics in key rice-producing regions are expected to drive global rice prices even higher. The challenges in the rice market highlight the importance of maintaining stable and affordable supplies of rice for consumers worldwide. Efforts to increase support for farmers and mitigate the impact of weather patterns are necessary to ensure food security and manage price volatility. Governments and industry stakeholders will need to closely monitor the situation and implement measures to address the potential risks to the global rice market. Additionally, diversifying rice sources and promoting sustainable agricultural practices can help build resilience and reduce dependency on specific regions or countries.