Economy
Will export curbs on rice keep prices in check?
Summary
India has had years of production gains and material buffer stocks, which made the country the second largest producer of rice to the world.Back in April, Prime Minister Narendra Modi had said India was ready to supply food stock to the world, if the World Trade Organization permitted. However, since then, as inflation spiralled out of control, India imposed a series of restrictions on export of food items, most prominently on wheat on 13 May, on wheat flour on 12 July, and now on rice on Friday.
The decisions have come against the backdrop of rising food prices following the disruptions caused by the Russia-Ukraine war and decline in production or acreage of crops. The ban on wheat exports came when production was 3% lower than the target and prices had risen about 7% year-on-year.
The move to ban exports of broken rice and impose duty on various grades of rice on Friday has come at a time when sowing of rice is down 5.7% so far this year and retail prices are up 5.7%. However, data from the Department of Consumer Affairs shows the restrictions on exports of wheat and wheat flour had no material impact on retail prices of these items. Average price of wheat across India in August was up 15% year-on-year, and wheat was up 16%.
Retail food inflation in July was 6.75%, marginally higher than headline inflation of 6.71%. Data for August is due on Monday.
India has had years of production gains and material buffer stocks, which made the country the second largest producer of rice in the world. In 2021-22, rice production had overshot the target by 7.6%. This year, however, extreme weather conditions and erratic rainfall is set to lead to a decline in rice production, with food secretary Sudhanshu Pandey estimating the loss of production at 10-12 million tonnes.
While domestic shortage of rice is unlikely, the move to stabilize domestic prices may lead to near-term inflationary consequences, especially in the South Asian region, Barclays said in a report on Friday.
China, Vietnam, Nepal, Sri Lanka are among the top export destinations for India’s non-basmati rice exports. Moreover, global prices of rice are unlikely to subside as China, the largest exporter of rice, is seeing drought-like conditions, while Pakistan, the fourth largest exporter of rice, has been impacted by severe flooding.
