India rice export ban creates international shockwave on commodity markets

02 Aug 2023 --- India’s sudden ban on non-basmati white rice continues to cause ripple effects across international markets, spurring some panic buying and price increases. Moreover, the country is dealing with increased prices for tomatoes and other vegetables and for wheat and sugar, fueling food inflation.

Indian consumers have engaged in hoarding and there have been reports of panic buying and sporadic shortages in some US supermarkets. 

Nonetheless, the issue was localized in some cities and problems were subdued as ample supplies to restock shelves are available.

“We are not putting any limits on purchasing at this time and are working closely with our suppliers to meet any increased (rice) demand,” a Walmart spokesperson tells Food Ingredients First.

India is the world’s largest rice exporter, selling US$10 billion in 2021, almost three times the amount of the second largest exporter, Thailand (US$3.48 billion), according to the Observatory of Economic Complexity.

Prices of rice in India have risen 11.5% year-on-year and 3% in the past month, according to the country’s Ministry of Consumer Affairs, Food and Public Distribution.

Vegetables skyrocket
While rice prices are rising, tomato prices  are skyrocketing. India’s National Horticulture Board signaled that, in some Indian regions, prices of tomatoes are up more than 600% in the last year, as the nation battled a mix of heatwaves earlier this year and, more recently, floods and landslides.  

Moreover, the price increases mainly occurred in a single month, with retail prices for tomatoes in many regions going from 2,500 INR to 10,000 INR per metric ton in June (from US$30.36 to US$121,45). In July, prices increased a further 20% in most regions. 

India’s curbing of rice exports might lead to more food inflation, according to the IMF.Other vegetables experiencing inflation are onions (with inflation ranging from 3.7% to 83.1%, depending on the region, compared to last year) and garlic (inflation ranging from 77.8% to 337.5%). 

Similarly, fruits like apples have experienced inflation well into double digits.

McDonald’s had to stop using tomatoes in many locations in India due to lack of availability and concerns on quality and prices. 

“Globally harmful” restrictions
India’s curbing of rice exports might lead to more food inflation, according to the International Monetary Fund (IMF). The international body highlights that the export limit will have a similar effect to the collapse of the Ukraine Black Sea grain export deal.

According to the IMF, global grain prices could spike up 10% to 15% this year.

“In the current environment, these types of restrictions are likely to exacerbate volatility on food prices in the rest of the world and they can also lead to retaliatory measures,” says Pierre-Olivier Gourinchas, chief economist at the IMF.

“We would encourage the removal of these types of export restrictions because they can be harmful globally.”

The Indian government has historically taken an interventionist approach on stabilizing food prices and ensuring adequate supply.

Last year, India banned broken rice exports after its Kharif planting region suffered droughts and floods. The country also implemented a sugar export limit, a wheat export ban and a wheat flour export tightening in 2022.

Inflation battle “far from over”
Alongside dealing with increased prices for rice, vegetables and some fruits, Indian consumers also face increased costs for wheat and sugar, commodities that have risen in price across countries in recent months.In some Indian regions, prices of tomatoes are up more than 600% in the last year.

“Food price spikes typical of the onset of the monsoon drove up headline inflation in June, corroborating the monetary policy committee’s view that the fight against inflation is far from over and monetary policy has to stay the course on the arduous last leg of the journey to align inflation with the target,” the Reserve Bank of India noted in July.

Food inflation in the country rose in June to 4.5%, up from 3% in May. 

According to a report, from last week, of the Global Agricultural Information Network for the US Department of Agriculture, India’s wheat output this year will be lower than previous estimates, at 108 million metric tons, down from the forecasted 113.5 million metric tons earlier this year. 

Some estimates by some domestic Indian trade bodies put the actual number closer to 100 million metric tons.

To prevent price surges, the country has limited the amount of wheat stocks traders can hold.

Meanwhile, sugar prices in India have risen to 36,240-37,430INR (US$440 to US$455) – from 34,220-35,390INR last year or US$416 to US$430), according to the Union Minister of Consumer Affairs of India, Piyush Goel. Nonetheless, these figures have increased at a lower rate than global sugar commodity prices, up 29.7% this year, according to the UN Food and Agriculture Organization.

Producers are still hindered by the export limit of sugar, with mills allowed to export up to 6.1 million metric tons during the current season ending on the last day of September. 

Echoing the circumstances in 2022, the free trade of food commodities has come into question. India’s rice export ban and the termination of the Black Sea Grain Initiative – and the free flow of Ukrainian grain – could trigger a surge in food prices in the coming months, like the IMF predicts. This comes just as some nations are starting to observe some relief in food inflation.

Nonetheless, food companies have strengthened and diversified supply chains in the last year and Ukraine’s grain keeps flowing through land routes and the European Solidarity Lanes.

By Marc Cervera

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