Nomura said India’s rice production was down 5.6% year-on-year as of September in light of below-average monsoon rains, affecting the harvest.
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India, the world’s largest rice exporter, has banned shipments of broken rice — a move that will reverberate across Asia, according to Nomura.
In an effort to control domestic prices, the government banned the export of broken rice and imposed a 20% export tax on several types of rice from September 9.
Nomura said the impact on Asia would be uneven, and the Philippines and Indonesia would be more vulnerable to bans.
India accounts for nearly 40% of global rice shipments, and exports to more than 150 countries.
Exports amounted to 21.5 million tons In 2021. This is more than the total shipment from the four largest grain exporters – Thailand, Vietnam, Pakistan and the United States, Reuters reported.
But Nomura said production was down 5.6% year-on-year as of Sept. 2 in light of below-average monsoon rains, affecting the harvest.
Sonal Varma, chief economist at the financial services firm, said July and August are the “most critical” months for rainfall, as they determine the amount of rice planted. She added that uneven monsoon rainfall patterns during those months this year led to reduced production.
India’s large rice-producing states like West Bengal, Bihar and Varma said Uttar Pradesh is seeing 30% to 40% less rainfall. Despite the increased rainfall at the end of August, “the delay in sowing increased [of rice] That is, the higher the risk of lower returns.”
Earlier this year, the South Asian country wheat curb and sugar exports to control rising domestic prices as the Russo-Ukrainian war disrupted global food markets.
Nomura said the Indian government recently announced that rice production during the southwest monsoon season between June and October could drop by 10 to 12 million tons, meaning crop yields could drop by as much as 7.7% year-on-year.
According to a recent Nomura report, “The impact of India’s ban on rice export will be felt directly by countries that import from India and also indirectly by all rice importers, due to its impact on world rice prices.”
Results from Nomura revealed that the cost of rice has remained high this year, with prices in retail markets increasing to around 9.3% year-on-year in July, compared to 6.6% in 2022. Consumer price inflation (CPI) for rice has also risen. 3.6% YoY as of July, up from 0.5% in 2022.
Nomura said the Philippines, which imports more than 20% of its rice needs, is the Asian country most at risk of price hikes.
As Asia’s largest net commodity importer, rice and rice products account for 25% of the country’s CPI basket of food, the highest share in the region, according to statista.
The country’s inflation rate reached 6.3% in August, according to data from Philippine Statistics Authority Show – Above the central bank’s target range of 2% to 4%. In light of this, India’s ban on exports would be an additional blow to the Southeast Asian country.
Likewise, India’s ban on rice export would be detrimental to Indonesia as well. Indonesia is likely to be the second most affected country in Asia.
Nomura reported that the country relies on imports for 2.1% of its rice consumption needs. Rice makes up about 15% of the CPI food basket, according to Statista.
But for some other Asian countries, the pain is likely to be minimal.
Singapore imports all of its rice, with 28.07% of it coming from India in 2021, according to Trade Map. But the country is not as vulnerable as the Philippines and Indonesia as “the share of rice in [country’s] Varma noted that the CPI basket is very small.”
She said consumers in Singapore tend to spend a “larger portion” of their expenditures on services, which usually appears to be the case for high-income countries. On the other hand, low- and middle-income countries tend to “spend a larger proportion of their expenditures on food”.
“The vulnerability must be seen in terms of the impact on consumer spending and the extent to which countries are dependent [are] on imported foodstuffs.
On the other hand, some countries may be beneficiaries.
Nomura said Thailand and Vietnam would likely benefit from India’s ban. This is because they are the second and third largest rice exporters in the world, making them the most likely alternatives to countries looking to bridge the gap.
Vietnam’s total rice production was about 44 million tons in 2021, with exports bringing in $3.133 billion, according to a Report Published in July by research firm Global Information found.
Data from Statista showed that Thailand produced 21.4 million tons of rice in 2021, an increase of 2.18 million tons over the previous year.
As exports increase, and India’s embargo puts upward pressure on rice prices, the total value of rice exports will increase and these two countries will benefit from it.
“Anyone who is currently importing from India will look to import more from Thailand and Vietnam,” Varma said.