Rice to get costlier as weather, India’s farm perks threaten supply

worldwide rice Prices, now at 11-year highs, are set to rise after India moved to boost payments to farmers, just as El Nino threatens crops at key producers and substitute staples become more expensive for poor Asians and Africans.

India accounts for more than 40 percent of global rice exports, which will reach 56 million tonnes in 2022, but low stocks mean any cut in shipments will push up food prices due to last year’s Russian invasion of Ukraine and erratic weather.

“India was the cheapest supplier of rice,” P.V. Krishna Rao, president of the Rice Exporters Association, told Reuters. “With Indian prices rising due to the new minimum support price, other suppliers have also started raising prices.”

Rice is a staple for more than 3 billion people, and nearly 90 percent of the water-intensive crops are grown in Asia, where an El Nino weather pattern typically leads to lower rainfall.

But even before weather disrupts production, the FAO’s global rice price index is hovering above an 11-year high.

This comes despite the United States Department of Agriculture (USDA) forecasting near-record production in all of the world’s six largest producers – Bangladesh, China, India, Indonesia, Thailand and Vietnam.

“The impact of El Nino is not limited to any one country, rather it affects rice production in almost all producing countries,” said Nitin Gupta, vice president of Olam India Rice Trading.

The price of Indian rice exports jumped 9 percent to a five-year high, following a 7 percent rise last month in the price the government pays farmers for new season rice.

Export prices in Thailand and Vietnam have risen to their highest levels in more than two years since that stimulus, aimed at wooing farmers’ votes in key Indian state elections this year and next year’s general election.

In recent months, prices of sugar, meat and eggs have jumped to multi-year highs around the world, after producers cut exports to curb domestic costs.

Despite expectations for a strong Asian crop, some global trading houses expect El Nino to curtail production by all major rice producers.

“The price of rice has already gone up due to limited supplies,” said Gupta from Ulam. “If production falls, there will be a rise in prices.”

Global rice stocks are set to fall to a six-year low of 170.2 million tonnes by the end of 2023/24, as stocks at major producers China and India decline, according to the USDA, after rising demand in recent years.

Prices may go up by a fifth

Prices could rise by a fifth or more if yields fall sharply, said a New Delhi-based grain trader with a global trading house, because El Niño means that the second rice harvest in almost all Asian countries will be lower than usual.

Thailand, the second source, urged farmers to plant just one rice crop after rainfall in May was 26 percent below normal.

In India, which sows its second crop in November, summer rice plantings were down 26 percent from a year ago by Friday, as the monsoon brought 8 percent less rain than usual, according to government data.

Rosa Wang, an analyst with Shanghai JC Intelligence, said the weather in China, the largest grain producer, was not favorable for the early season crop, but large stocks would balance supply and demand.

Food price inflation is a constant concern of India’s ruling party, which banned wheat exports last year and curbed exports of rice and sugar to bring down prices.

With elections looming, a slow start to farming amid rising domestic prices is a concern for Prime Minister Narendra Modi’s Bharatiya Janata Party, raising the possibility that it will further curb exports.

“The Modi government is struggling to contain rising wheat prices, which is why it will not hesitate to impose restrictions,” said the trader, who is based in New Delhi, the Indian capital.

Industry officials say India’s restrictions will leave other countries struggling to replace supplies.

“The supply situation is very tight, and lower Indian exports could lead to higher global prices,” said a Singapore-based trader with a global trading house.

The trader added that Myanmar, Pakistan, Thailand and Vietnam combined could increase exports by between 3 million and 4 million metric tons.

The rise in prices also complicates the task of creating inventories.

Himanshu Agarwal, executive director at Satyam Balaji, an Indian exporter, said demand from price-sensitive African countries has slowed.

But some Asian buyers, such as Indonesia and the Philippines, have been building inventories and increasing purchases from traditional supplier Vietnam.

Last month, Indonesia signed a rare deal with India to import 1 million tonnes if El Nino disrupted domestic supplies. Indonesia usually buys rice from neighboring Thailand and Vietnam.

“Rice has been a buyers’ market for the past few years, but it could become a sellers’ market if El Nino cuts production,” said the Singapore-based trader.