Risks to cereal inflation: Is rice the new wheat?

How are prices moving?

According to the consumer affairs ministry, the average retail price of rice was ₹39.3 per kg on 3 June. That’s 8.5% higher than last year. In comparison, retail wheat inflation was at 5.6% on the same day. In the cereals, pulses and oilseeds basket, retail price rise is the steepest for rice currently, except for tur dal (pigeon pea), a pulse variety. Data from the wholesale price index published monthly shows that April rice prices were 7.7% higher than last year, compared to 7.1% inflation for wheat. The price surge in rice with wheat staying firm means that managing cereal inflation will not be an easy task.

Why are prices rising?

Rice production in the last Kharif season (June to October, 2022) was impacted by scanty rainfall in parts of Uttar Pradesh, Bihar and West Bengal. This pushed the government to impose restrictions on the export of non-basmati rice in September 2022), which included a 20% export duty and a ban on broken rice exports. Yet, India is estimated to have shipped out 22.5 million tons (mt) of rice in 2023, marginally higher than the previous year. Unlike in wheat, India is the largest exporter of rice with a 40% share of the global trade. The trade curbs set by India were among factors which contributed to the continuing surge in global prices.

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What about public stocks of rice and other grains?

With public purchase of wheat falling short of target, total foodgrain stocks with the government are at around 75 mt. This is enough to supply to food subsidy schemes and maintain a strategic reserve. However, the legroom to cool prices by offloading stocks in the market will depend on the size of Kharif rice harvest, planting for which begins this month.

Can the situation get precarious?

It depends on how the south-west monsoon pans out in an El Nino year, often associated with sub-par rains. The official forecaster has predicted normal rains at 96% of the 50-year-average, with a deficit in north-west India. With better access to irrigation, Kharif crops are more resilient to deficit rains. But if rainfall turns out to be much lower than forecast, with skewed distribution over time and region, rice and pulses could be hit. This means consumers will have to live with higher cereal prices for some more months.

What steps can the government take?

It can tighten export controls on rice and impose stock limits to lower prices. But more export controls won’t be easy—many poor nations depend on cheap Indian rice. Also, the El Nino phenomenon can impact rainfall in the south and south-east Asia region—the world’s rice production and consumption hub—driving global prices higher. Climate events can reverse India’s marginal foodgrain surpluses into deficits. But official estimates of record production often discount these risks.