Aug13

Looming drought in India: what’s at stake for the global rice market?

Author // Dr. Sam Mohanty Categories // Sam's rice price and market blog

More than half way into the monsoon season, many Indian states continue to reel under deficient rainfall. Many experts feel this monsoon is worse than even the 2009 season when drought reduced Indian rice production by more than 10 percent. But it is still too early to gauge the extent of damage to rice production because of deficit rainfall.

The situation can still improve if the monsoon returns to normal for the remainder of August and September. For example, the planting situation in Andhra Pradesh has improved drastically after good rainfall since the second half of July. That is the case in many other parts of India where rainfall situation has improved in the last few weeks.

So far, the worst affected rice growing states are Punjab, Haryana, and Western Uttar Pradesh where rainfall deficit has been more than 50 percent. Fortunately, rice production in these places may not be impacted much because more than 90 percent of rice grown there is irrigated. In addition, the government initiative to provide a diesel subsidy should help farmers in saving their crops if the monsoon fails. However, the failure of monsoon in rainfed regions is likely to be devastating for millions of small and marginal rice farmers who depend on their rice crop for their livelihood.

It is almost certain that Indian rice production in 2012/13 will not reach the level that was harvested in 2011/12. But India still may end up harvesting 95 million tons of rice in 2012/13, enough to meet domestic demand. With an additional 34 million tons of rice in government warehouses (as of July 7, 2012, source: Food Corporation of India), India is in a very comfortable position to sail through this drought with prudent stock management. But it is not clear at this stage how Indian drought will affect the global rice prices and the market could unfold in different ways depending on the action of two major exporters (India and Thailand).

However, the 11 million tons of rice mortgage stocks in Thailand should provide some stability to the market in the coming months. With the current rice crop looking good, the Thai government is desperately trying to unload part of its rice mortgage stocks to make room for the new that will be entering the mortgage scheme in the next few months. If India decides to remain in the export market then there is a possibility of some weakening of global rice prices depending on how aggressively Thailand sells its rice to make space for the new crop. If India decides to bring back the export ban on nonbasmati rice then Thailand will gladly pick up the slack left by India with some strengthening of prices.

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About the Author

Dr. Sam Mohanty

Dr. Sam Mohanty

As head of the Social Sciences Division, Sam recruits and retains quality staff and create a conducive environment for research and professional development and conduct research on all aspects of rice including marketing, policy and trade and impact assessment.

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