India is currently the world's top rice exporter in terms of quantity, holding a significant global market share. However, India recently implemented an export ban on July 20, 2023. This sudden decision has created significant difficulties for other countries, especially those heavily reliant on rice imports from India. The Directorate General of Foreign Trade (under the Ministry of Commerce and Industry of India) announced the halt of exports for all non-Basmati rice varieties (a common rice in South Asia) to stabilize domestic prices. This decision took immediate effect, affecting global rice prices. Pre-existing orders will still be processed, and exports will resume only with Indian government approval, ensuring food security in the importing country and maintaining bilateral relations. What are the reasons behind India's implementation of such an export ban?
India's rice export ban, source: Collected
The first reason is unfavorable weather conditions, with extreme El Nino phenomena significantly impacting Indian farmers' harvests. Additionally, the cultivation area has decreased substantially. According to the Indian Ministry of Agriculture, the total cultivation area in India has decreased by 15% compared to the same period last year, leading to reduced rice production and challenges in meeting both domestic and export demands.
The second reason is the sharp increase in rice and food prices in India recently. During this period, rice prices surged by 10-12%. This increase has had a significant impact on inflation rates, affecting the lives of the country's citizens, especially the poor.
The third reason, in 2022, the Indian government issued a 100% ban on the export of basmati rice and imposed a 20% tax on non-basmati rice varieties, yet the country's total rice exports have continued to increase significantly. If this trend persists, it could lead to domestic food shortages, affecting the balance of demand within the country.
The fourth reason, as assessed, could be related to political factors. In 2024, India will hold nationwide general elections. This election will determine the formation of a new government for the next 5-year term. Therefore, any fluctuations in food prices in general and rice prices in particular domestically will impact voter decisions and influence the election results.
Immediately after the export ban was implemented, global rice prices surged, with the potential impact expected to extend beyond that. This demonstrates the significant role of India in global rice trade, accounting for over 40% of global rice exports. In 2022, India's rice exports reached a record high of 22.2 million tons, surpassing the combined total output of the next 4 exporters including Vietnam, Thailand, Pakistan, and the United States.
The high rice prices have posed difficulties for the people, source: Collected
Not limited to India, on July 28, the United Arab Emirates (UAE) also announced a halt in rice exports for the next 4 months. This regulation applies to all types of rice and takes effect immediately upon issuance. After India enforced its ban, the UAE also prohibited the re-export of rice imported from India after July 20.
The following day, on July 29, the Russian government announced a ban on rice exports until the end of the year (until December 31, 2023) to stabilize the domestic market. This ban does not apply to the member countries of the Eurasian Economic Union, as well as Abkhazia and South Ossetia. Additionally, rice can still be sent abroad for humanitarian purposes.
How does the world react after the export ban on rice is issued? Rice is currently the staple food for over 3 billion people globally, with increasing demand for rice. Countries continuously imposing bans on rice exports have made it very challenging for mainly rice-importing countries to meet their domestic needs in the future.
India exports rice to over 180 countries and territories, so when this "giant" announces a ban on rice exports, it comes as a thunderbolt to the entire world, especially to Asian and African countries. According to Barclays, Malaysia could be the most affected country due to its significant dependence on Indian food supplies. Additionally, Singapore, which imports about 30% of its rice from India, is also significantly affected. The Philippines will also feel the impact of this ban as global rice prices rise, with rice making up a significant portion of the CPI index for Filipinos.
The tumultuous world after the rice export ban, source: Collected
Not only in Asia, but countries in Africa and the Middle East are also heavily affected. BMI - a research unit of Fitch Solutions - indicates that the markets most vulnerable to India's rice export ban are concentrated in sub-Saharan Africa, the Middle East, and North Africa (MENA). The company highlights Djibouti, Liberia, Qatar, Gambia, and Kuwait as the most heavily impacted places.
