Nov02

Weather and politics rule the rice market

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

The floodwater that is causing havoc in Bangkok had earlier ripped through the central part of Thailand, inflicting damage on millions of hectares of rice. Preliminary estimates indicate that more than a quarter of Thailand’s wet-season rice crop (5 to 7 million tons of paddy rice) has been lost to flood damage.  More importantly, milling and other infrastructure has been damaged, thus slowing rice exports from Thailand in the coming weeks as the country recovers from the flood. Beyond Thailand, floods and typhoons have damaged rice crops in many other Southeast Asian and South Asian countries such as Cambodia, Myanmar, the Philippines, Laos, Vietnam, and Pakistan.

 

Dr. Mohanty says that for as long as decisions are made rationally by big rice-producing countries, the market will remain stable.

Dr. Mohanty says that for as long as decisions are made rationally by big rice-producing countries, the market will remain stable.

Despite weather-related damage to the rice crop in many countries, the global rice market remains astonishingly calm and stable. Unlike in 2007-08, rice-growing countries have shown extreme restraint so far in terms of restricting the flow of rice across borders. This is not surprising because the current situation is not the same as it was in 2007. For example, the current global rice stock is 20 million tons higher than in 2007. Many rice-growing countries such as India, Bangladesh, Vietnam, and others are in the middle of harvesting a good monsoon crop. The wet-season rice harvest in India is expected to approach 90 million tons (milled equivalent) compared with 81 million tons in the previous wet-season. This is reflected in record procurement by the government, with public stocks reaching 34 million tons by 27 October 2011 (source: www.Commodityonline.com).

India’s recent return to the non-basmati export market after a gap of nearly four years couldn’t have come at a better time as exports from Thailand are affected by floods and the rice-buying scheme. The market is now flooded with low-quality broken and parboiled rice from India, Pakistan, and Myanmar. As Thailand recovers from floods and the rice-buying scheme picks up its pace, it is critical for India to remain in the non-basmati export market to counter upward pressure exerted by Thailand on the global rice market. However, despite burgeoning procurement stocks and a good harvest, India’s ability to export a large amount of rice is limited in the face of the expected expansion of the food subsidy program to include a larger share of rural and urban poor, including pregnant and lactating mothers and children below 14 years of age. In addition, the impending state assembly elections in 2012 in many crucial states, including Uttar Pradesh, are likely to make the Indian government in New Delhi play it safe in limiting rice exports in the coming months.  

Overall, the global rice market remains plagued by extreme weather and domestic politics. Despite the healthy global inventory and production, the market is likely to remain volatile in the face of changing policies in many rice-growing countries. The detailed implementation of the Thai rice mortgage program is not very clear yet. But, at least it is clear that the mortgage program will allow the government to directly control the flow of rice out of Thailand, creating more uncertainty in the global market. Although India’s decision to resume non-basmati rice exports has come at an opportune time and has contributed to the stabilization of the market, India remains a dark horse in the global rice market. Nobody knows how long India will remain in the market and how much it will export in the coming months. The global rice market may be better off without India than with an India that hops in and out of the market in an unpredictable manner. In the next few months, the fate of the market will depend on the actions of the major rice-growing countries. As long as these countries behave in a rational manner, there is enough rice to go around without flaring up the market. 

Sharing

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.

Read his profile | more blog articles