agritrade

Rice prices stable despite possible Indian policy interventions

08 October 2012

Despite the downgrading of Indian rice production levels and reduced forecasts for production in Cambodia, Taiwan, North Korea, South Korea and Nepal, according to the July 2012 issue of the FAO Rice Market Monitor, ‘world output should still slightly surpass the excellent results achieved in 2011’. ‘Global paddy production is expected to total 724.5 million tonnes (483.1 million tonnes on a milled basis)’, compared to an original April 2012 forecast of ‘732.3 million tonnes (488.2 million tonnes on a milled basis)’. This is attributable to strong production growth in China, Indonesia, Thailand and a 32% increase in Australian production.

As a consequence, ‘rice prices have remained surprisingly stable after gaining 2 per cent in May’, compared with the sharp increases in wheat and maize prices  (+17.1% and +23% in the month to 9 August 2012).

Rice production in Africa, meanwhile, is projected to increase by 3%, and, elsewhere in the ACP, good prospects are reported for Guyanese rice production, in line with the trend across South America. ‘Global rice inventories at the close of the 2012-2013 marketing years were revised upward from 164.5 million tonnes to 200 million tonnes (milled basis)’. This implies an eighth consecutive year of increases in global rice stocks. In addition, ‘Thailand needs to release its abundant stocks before the October harvest, which could impact prices.’ In view of these projections, the FAO does not foresee any strong increase in rice prices in the coming months. However, it notes that ‘the future direction of rice prices remains uncertain’.

Critical in this regard is India’s rice trade policy. Press reports indicate that currently the Indian rice harvest ‘may fall far faster than had been thought, thanks to the weak monsoon rains’. This is resulting in reduced planting of rice (-4.76%), in what is the world’s second largest rice producer. Analysts note that ‘India's rice harvest has taken on particular global importance since top exporter Thailand initiated a stockpiling programme.’ This measure, designed to boost rural incomes, has reduced supplies available for export.

While the Indian government is exploring ‘additional market control measures…to keep domestic prices in check, it is unlikely to impose any export control measures on rice, wheat and corn unless production prospects deteriorate further’.

In this context, USDA has argued that rainfall patterns will also have an influence on whether the Indian government decides to impose an export ban.

Editorial comment

Against the background of strongly rising wheat and maize prices (which are believed to have not reached peak levels), the stability of global rice prices could offer some relief to hard-pressed ACP food importers. This is particularly the case in view of the rapidly increasing consumer demand for rice in Africa.

In West Africa, for example, while average rice production has grown in the high double-digits in larger rice producers (Guinea +60% and Mali +82%), doubled and tripled in smaller rice producers, and increased by 12% in the largest regional market, Nigeria, rice consumption has grown even more strongly, leaving a substantial and growing rice deficit which needs to be met by imports. Similar trends are apparent in other African regions (see Agritrade Executive brief: Update, ‘ Rice sector’, June 2012).

As a result of these developments, Indian policy interventions are likely to be closely watched, and need to be seen against the background of the largely policy-driven increase in global rice prices, which peaked in April 2008 (see Agritrade Executive brief: Update, ‘ Rice: Trade issues for the ACP’, 28 February 2010). However, the importance of ACP and other major rice-consuming country governments not overreacting to media coverage of possible policy interventions needs to be highlighted. There is a danger that any panic buying, as in 2007/08, could generate a self-fulfilling prophecy and stimulate the price increases they were intended to guard against.

Transparency and openness in Indian rice-sector policy making would appear to be essential, as would accurate information on the availability of global rice supplies, in order to dampen down any speculative price pressures which might emerge. 




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