India Rice Ban Will Benefit U.S. Rice Exports, Increase Market Volatility

Key Points

• On July 20, the Indian government banned the export of non-basmati white rice “to allay the rise in prices in the domestic market” stemming from threats posed by Black Sea geopolitics, El Nino and extreme climatic conditions in other rice-producing countries. The ban affects 7-8 million metric tons of Indian rice exports, or 15% of global rice trade.
• Prices of rice in other top exporting Asian countries like Thailand, Vietnam and Pakistan have skyrocketed as a result of the ban as countries scramble to cover their needs, raising concerns that other countries will also restrict or ban exports.
• Expectations for a significant increase in U.S. rice supplies has dampened U.S. rice prices. However, the ban ultimately will benefit U.S. rice producers with stronger export demand likely developing, particularly from Iraq. U.S. rice may also backfill into the Caribbean, and Central and South America.
• Long term, high global prices will increase rice production, and growing stockpiles of rice in India will ultimately be dumped on the world market, causing world rice prices to over-correct.
• With heightened rice price volatility in the offing, rice producers and merchandisers should review their liquidity situation in the event of much higher rice prices and hedging needs.

Indian rice export ban

Following a jump in food inflation in June and erratic weather that negatively impacted India’s spring-planted (rabi) rice crop, India’s government imposed a ban on non-basmati rice exports. Its aim is to contain domestic rice prices amid rising food inflation, the threat of El Nino to Indian rice harvests, and the geopolitical risk in the Black Sea region on wheat prices. This followed previous efforts by the Indian government to stem exports. In September 2022, India banned exports of 100% broken rice, which typically total 3-4 million metric tons (MMT) per year, and imposed a 20%-tariff on paddy rice, brown rice, and non-basmati rice. All Indian rice exports last year totaled 22.1 MMT, accounting for about 40% of the global rice trade. 

The most recent ban is focused only on white rice, which accounts for 7-8 MMT, or 15% of global rice exports. India’s basmati exports of 4-5 MMT are excluded from the ban, as are parboiled rice exports of 7-8 MMT. 

India’s government also made exceptions for government-to-government deals, promising that white rice exports will be allowed with permission to countries that are working to meet food security needs. 

The threat of reduced global rice supplies has caused India’s top importers across Asia, West Africa and the Middle East to scramble to secure rice supplies in anticipation of global shortages. Prices of white 5% broken rice in Thailand, the second-largest rice exporter with about 13% of global market share, have climbed 18% since the Indian export ban was imposed. The sharp rise in Asian rice prices has raised concerns of other important exporters following with similar restrictions or bans on rice exports, which would cause extreme volatility in world rice prices.

U.S. impact

U.S. rough rice prices on the CME have been virtually unchanged relative to other global exporters like Thailand and Brazil since India’s export ban was imposed. Although new export demand for U.S. rice currently has not made significant changes since the Indian export ban, the U.S. likely will see new demand emerge to backfill into markets that are more price-sensitive to higher Asian rice prices. As Thai rice prices remain elevated, the U.S. is expected to benefit indirectly from Iraq taking a closer look at cheaper U.S. rice. The Iraq government has signed an MOU for U.S. rice for 200,000 MTs, or 4.4 million cwt. Iraqi demand for U.S. rice may even exceed the amount in the MOU. Higher rice prices in Vietnam may also result in new backfill-demand for U.S. rice into the Caribbean and Central and South America. Domestically, demand for U.S.-grown fragrant rice varieties, namely jasmine and basmati, may strengthen as prices of Asian imports rise. 

The U.S. will be well positioned to meet higher export demand with all-rice production this year expected to climb to 203.6 million cwt, up 26.9% YoY, according to the USDA. Potential new export business that emerges following the ban will most likely be for long-grain rice. Total U.S. long-grain rice production is figured at 146.8 million cwt, up 14.5% YoY. 

Long-term consequences

Indian rice farmers are insulated from falling rice prices in country by the Indian government. It sets market support prices and heavily subsidizes crop inputs like fuel, fertilizer and water to support farmer incomes and lower food prices. As a result, Indian rice production will not likely be impacted by the export ban. In April, a consortium of grain exporting countries, including the U.S., formally challenged India at the World Trade Organization for violating price supports and subsidies for wheat and rice. India’s rice subsides in the 2020-21 marketing year were estimated to be 93.9% of the value of rice. 

As long as the Indian rice export ban is in place, higher global rice prices will prompt other countries to expand rice production, thereby increasing global supplies. When India’s export ban is reversed —presumably after the elections next May — the growing rice surplus in India ultimately will be dumped on the export market, which would cause world rice prices to over-correct from the sudden flood in supply. A prolonged period of abnormally depressed rice prices and lower incomes among rice farmers, including in the U.S., will likely follow the reversal of India’s rice export ban.