Impact on the Philippines, Indonesia, Thailand: Nomura
India’s rice production fell 5.6% year-on-year as of September, Nomura said, due to below-average monsoon rains, which affected the crop.
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India, the world’s largest exporter of rice, has banned shipments of broken rice, a move Nomura said would reverberate throughout Asia.
In an effort to control domestic prices, the government banned the export of broken rice and imposed an export duty of 20% on several varieties of rice effective September 9.
Nomura said the impact on Asia would be uneven, with the Philippines and Indonesia most vulnerable to the ban.
India accounts for about 40% of the world’s rice supply, which is exported to more than 150 countries.
Exports reached 21.5 million tons in 2021. This is more than the total shipment of the next four largest grain exporters – Thailand, Vietnam, Pakistan and the United States, according to Reuters.
But as of Sept. 2, production was down 5.6% year-on-year due to below-average monsoon rainfall, which weighed on crops, Nomura said.
For India, July and August are the “most important” months for rainfall, as they determine how much rice is planted, Sonal Varma, chief economist at finance firm, said. This year, the unevenness of the monsoon rains during these months has led to a reduction in production, she added.
Major rice producing states of India such as West Bengal, Bihar and According to Varma, Uttar Pradesh gets 30-40% less rainfall. Although rainfall increased towards the end of August, “the longer the planting [of rice] that is, the greater the risk that returns will be lower.”
Earlier this year, the South Asian nation curtailed exports of wheat and sugar to curb rising local prices as the Russian-Ukrainian war sent global food markets into turmoil.
Most affected
The Indian government recently announced that rice production during the southwest monsoon season from June to October could fall by 10 million to 12 million tons, meaning that yields could fall by 7.7% year on year, Nomura said.
“The impact of India’s rice export ban will be felt both directly by countries that import from India and indirectly by all rice importers due to its impact on global rice prices,” Nomura said in a recent report.
Nomura’s findings showed that rice prices have remained strong this year, with retail market prices rising about 9.3% year-on-year in July, compared to 6.6% in 2022. Consumer price inflation (CPI) for rice also rose sharply. 3.6% year on year as of July compared to 0.5% in 2022.
The Philippines, which imports more than 20% of its rice consumption, is the country in Asia most at risk of price increases, Nomura said.
As Asia’s largest net importer of the commodity, rice and rice products account for 25% of the country’s CPI food basket, the highest share in the region, according to Statistics.
Inflation in the country in August amounted to 6.3%, according to data Philippine Statistics Office showed – above the target range of the Central Bank from 2% to 4%. In light of this, India’s export ban would be an additional blow to the Southeast Asian nation.
Similarly, India’s ban on rice exports will hurt Indonesia as well. Indonesia is likely to become the second most affected country in Asia.
Nomura said the country is dependent on imports for 2.1% of its rice needs. Rice makes up about 15% of the CPI food basket, according to Statista.
However, for some other Asian countries, the pain is likely to be minimal.
Singapore imports all of its rice, with 28.07% coming from India in 2021, according to Trade Map. But the country is not as vulnerable as the Philippines and Indonesia, because “the share of rice in [country’s] The consumer price basket is quite small,” Varma said.
Consumers in Singapore tend to spend a “majority” of their spending on services, she said, which is typically the case in higher-income countries. On the other hand, low- and middle-income countries “tend to spend an even larger share of their spending on food.”
“Vulnerability needs to be considered in terms of both the impact on consumer spending and how dependent countries [are] on imported food,” she added.
Countries that will win
On the other hand, some countries may be beneficiaries.
Thailand and Vietnam are likely to benefit from India’s ban, Nomura said. This is because they are the second and third largest rice exporters in the world, making them the most likely alternative for countries looking to fill the gap.
According to report published in July by research firm Global Information.
Statista data showed that Thailand produced 21.4 million tons of rice in 2021, up 2.18 million tons from the previous year.
With the increase in exports and India’s ban on rising rice prices, the total value of rice exports will increase and the two countries will benefit from this.
“Anyone currently importing from India will look to import more from Thailand and Vietnam,” Varma said.
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