The impact on China's grain market is limited, and India's ban on rice exports has led to a surge in international rice prices

Affected by the escalation of global geopolitical conflicts and the reduction in rice production caused by the El Ni ñ o incident, the Indian government announced on July 20th a ban on rice exports except for steamed rice and Indian fragrant rice. The United Arab Emirates and Russia immediately followed suit and issued a ban on rice exports. As a result, the global rice market is experiencing supply shortages and soaring prices, which may exacerbate the expectation of a global food crisis and trigger an adjustment in the international trade pattern of rice. From the perspective of China's rice production and supply base, as well as the structure of rice imports, it is expected that the impact on the grain market will be very limited, and domestic rice prices will remain relatively stable without the foundation for a significant increase.

Why is India banning rice exports?

The Indian government announced on July 20th that in order to ensure domestic market supply, India will ban the export of rice except for steamed rice and Indian fragrant rice, which will take effect immediately. Subsequently, the UAE Ministry of Economy also announced on the 28th a suspension of exports and re exports of UAE rice for four months, including rice imported from India to the UAE after July 20th, and applicable to all rice varieties. On July 29th local time, the Russian government announced that in order to ensure the stability of the domestic market, it has decided to continue to ban the export of domestic rice and broken rice, with a deadline of December 31st this year.

India is the world's top exporter of rice, and rice is its advantage in generating foreign exchange through exports. Why did it suddenly cut off its trade channels? Behind unusual behavior, there are actually profound geopolitical conflicts, extreme weather, and political considerations. Firstly, global geopolitical conflicts are intensifying. The escalation of the conflict between Russia-Ukraine conflict has led to the obstruction of the global food trade channel, the double rise of demand and price, especially the interruption of the Black Sea food export agreement, which has further exacerbated the panic of countries around the world about the food crisis. Secondly, extreme weather conditions have triggered expectations of reduced rice production in major rice producing countries. In 2022, Pakistan, the world's fourth largest rice exporting country, experienced severe flooding, resulting in a 31% reduction in rice production. Since the beginning of this year, many countries in Southeast Asia and South Asia have been affected by the El Ni ñ o phenomenon, experiencing high temperatures and droughts, which have had a negative impact on rice production. The latest forecast from the US Department of Agriculture is that India's rice production for the year 2023/2024 will be 134 million tons, a decrease of 2 million tons from the previous year. Thirdly, India urgently needs to stabilize domestic food prices. The postponement of the rainy season in India this year has intensified expectations of reduced rice production, leading to the spread of domestic food shortage panic in India. According to Indian government data, the retail price of rice in India increased by 11.5% last year, and in June of this year, it rose by 3% within a month. To stabilize domestic food prices, India has issued a ban on rice exports, prioritizing the protection of domestic market supply.

How will the ban on Indian rice exports affect?

Since 2008, India's rice exports have consistently ranked first in the world for 15 consecutive years. In 2022, India's rice exports accounted for 40.2% of global rice trade and are a source of rice imports for over 140 countries worldwide. According to a July report by Gro Intelligence, an American data analysis company, India's current export ban will reduce the export volume of approximately 10 million tons of rice, directly affecting the short-term supply of the global rice market. The shock wave of India's rice export ban has triggered follow-up from the United Arab Emirates and Russia. According to USDA data, in the year 2022/2023, Russia's rice production was only 550000 tons, accounting for 0.1% of global rice production, and its export volume was 100000 to 150000 tons, less than 0.3% of the total global export volume; The United Arab Emirates itself is a rice importing country, and restricting exports will not reduce global rice supply. Although the ban on rice exports from both countries has a relatively small substantive impact on the international rice supply market, it will amplify the panic in the international rice market. Overall, the ban on rice exports from countries such as India will have at least three impacts:

One is the soaring international rice prices, which increases the risk of global food inflation. As the main staple food for many countries, the sudden decrease in supply of rice has triggered panic buying in multiple markets, leading to an imbalance in the supply and demand relationship of rice and a surge in prices in the short term. The Food and Agriculture Organization of the United Nations stated that the global rice price index rose 2.8% month on month and 19.7% year-on-year in July, reaching the highest level since September 2011. On July 27th, the export price of Thai rice, which serves as an international indicator, surged to $607.5 per ton, reaching the highest level since May 2012. Meanwhile, due to the strong substitutability of wheat for rice, international wheat prices reached a five month high in late July, and the risk of global food inflation is increasing.

The second is the expected intensification of the global food crisis, with particularly prominent food shortages in Africa. The International Food Policy Research Institute points out that due to the large export volume and low price of Indian rice, more than half of the rice imported from approximately 42 countries worldwide comes from India. In African countries such as Benin, Senegal, and Cote d'Ivoire, Indian rice has a market share of over 80%. According to the FAO report, approximately 900 million people worldwide were in a state of severe food insecurity in 2022, with Africa being the region with the most severe food shortage. Due to its high external dependence on rice and its high weight in the CPI basket, African rice importing countries were particularly affected by India's rice export ban. According to a report by British commodity price analysis firm Mintec, global rice inventories are at their lowest level in six years, and with the combined impact of factors such as restrictions on rice exports from various countries, the serious global food insecurity is likely to continue to increase.

Thirdly, some countries will adjust their planting layout, and the global rice trade pattern will change. The Indian rice ban may lead to rice importing countries seeking alternative sources of supply, while rice exporting countries opening up new production and transportation capabilities, thereby changing the global rice trade pattern. Currently, Vietnam and Thailand are actively adjusting their rice production and trade layout to increase rice production and exports. The Production Department of the Ministry of Agriculture and Rural Development of Vietnam stated in July that the autumn and winter rice planting area in the Mekong Delta of Vietnam will increase by 7.7% compared to the initial plan. This year, Vietnam's rice production will increase from 42.7 million tons last year to over 43 million tons, and the total rice export volume will increase from 7.1 million tons last year to 7.8 million tons. The Thai Ministry of Commerce stated that Thailand will expand its rice exports, with an expected rice export volume of over 8 million tons this year, higher than last year's 7.71 million tons, and actively explore the African market.

Will China's rice and rice market be impacted?

From the perspective of the global rice supply situation, the El Ni ñ o phenomenon has caused damage to rice production in several major rice producing countries in South Asia and Southeast Asia, as well as some rice producing countries in Europe. In addition, geopolitical conflicts continue, and trade channels are blocked, making it difficult to alleviate the global rice supply tension in the short term. From the perspective of global rice demand, countries such as the Philippines, Indonesia, and sub Saharan Africa have strong demand for rice imports, and governments and traders have a strong willingness to purchase rice. The international prices of bulk agricultural products such as wheat will be transmitted to each other, and the international rice price will remain at a high level.

In this context, the advantages of continuous bumper harvests and self-sufficiency in rice production in China have become more prominent and valuable. Although the growth of rice in some areas of Northeast China has been affected by floods this year, the growth of crops in most areas is normal, and the pattern of absolute food security has not changed. In the future, domestic rice prices will not rise significantly with the international market.

On the one hand, China has a strong ability to maintain stable rice production and supply, and the supply-demand relationship remains loose. In recent years, the average annual sowing area of rice in China has remained stable at around 450 million mu, ranking among the top in the world in terms of yield per unit area, far higher than countries such as India, Thailand, and Vietnam. The yield has remained stable at over 200 million tons for 12 consecutive years, ranking first in the world. Due to the surplus balance between production and demand, rice inventory has remained at a historical high for many years, and the central and local reserve regulation capabilities continue to strengthen. According to estimates of production and reserves, China's self-sufficiency rate of rice far exceeds 100%. According to data from the National Bureau of Statistics, early rice has achieved another bumper harvest this year, with a total output of 56.67 billion kilograms, an increase of 430 million kilograms from 2022. According to the agricultural situation dispatch of the Ministry of Agriculture and Rural Affairs, the overall growth of autumn crops in most areas of the country is normal, with only some parts of North China and Northeast China experiencing flooding disasters. Other regions have abundant rainfall and good soil moisture, coupled with simultaneous rainfall and heat, which is conducive to the growth and development of autumn crops.

On the other hand, the proportion of rice imports to China's total rice consumption is relatively small, and the decline in imports has a limited impact on the operation of the domestic grain market. In the past five years, the average import of rice in China has accounted for less than 3% of the domestic rice production. Among the 6.19 million tons of rice imported in 2022, 3.53 million tons of broken rice accounted for nearly 60% of the total import, mainly used for feed substitution, and a small amount of high-end rice was mainly used for variety adjustment. According to customs data, China imported 1.8054 million tons of rice in the first half of this year, a year-on-year decrease of 49.5%, mainly from Vietnam, Myanmar, and Thailand.

Overall, the increase in international rice prices caused by the ban on Indian rice exports will lead to an increase in the cost and quantity of rice imports in China, which may have short-term disruptions to the southern feed grain market. However, it will not have an impact on the normal operation of the domestic rice market, nor will it affect the overall situation of food safety. According to monitoring by institutions such as China Grain Network, since India banned rice exports, unlike the significant increase in international rice prices, the domestic rice and rice market has abundant supply and prices have remained relatively stable. Since the launch of the new season early rice harvest this year, the market has been active in purchasing and selling, and there has been no significant increase in prices. In the later stage, there is still a month or so until the mid to late season rice market is launched. It is expected that the prices of rice and rice in China will continue to maintain an overall stable trend with slight seasonal fluctuations. There is no need for various market entities to hold back on grain sales, and the general public does not have to rush to hoard grain for fear of rising rice prices.