Rice is a staple food across the developing world, particularly in Asia and West Africa, and is also the world’s largest source of employment. In 2023, lower-than-expected yields combined with an export ban from India, a major supplier, caused a sharp spike in prices, which now look set to plummet following the lifting of the ban late last year. Isaac Hanson speaks to Peter Clubb, market analyst at the International Grains Council, about how the market is developing.

 

GTR: In the International Grains Council’s five-year forecast for the rice market from 2021, you predicted that production and consumption of rice would grow, but more slowly than in previous years – is this still the case?

Clubb: Production did grow in 2023-24, but it wasn’t as good as it could have been because there were poor crops around parts of Asia, including in China. This year it’s looking like it’s going to grow quite well. The weather is much better for rice production this year. The year-on-year growth between 2023/24 and 2024/25 is around 2.1%, roughly double the prior five-year average growth rate, and weather may play a large factor here with improved conditions seen in some key growing regions.

GTR: In July 2023, India, the largest exporter of rice in the world, banned white rice exports; what led to the ban, and what impacts has it had on the market?

Clubb: If you go back a few years, because India had been subsidising rice production, they had been overproducing. Their stocks had been rising significantly to the point where they were becoming problematic. They just had too much rice; they were running out of places to store it as much as anything else.

Then Covid hit. Western governments printed a lot of money and supported their economies by giving cash handouts. India didn’t take that approach, but they did utilise these massive rice stocks to hugely expand their public distribution scheme. They previously offered discounted rice to Indian consumers, but during Covid, they did so free of charge, distributing around five kilograms per person per month.

Their stockpiles began declining, and then they had a combination of high inflation, as much of the world experienced, and what at the time was expected to be a poor rice crop because of the threat of El Niño, which tends to restrict monsoon rainfall. On top of this, they had a poor wheat crop, so their wheat stocks were also pretty tight. At that point, in 2023, the Indian government decided to stop some rice exports to help bring inflation down and boost local supplies at a time when rice stocks were lower.

They didn’t ban rice exports completely, though. During the period of the export ban, India was still the world’s biggest rice exporter by far, because they only banned non-basmati white rice and broken rice. Basmati and importantly parboiled rice were both still allowed. As their white rice exports plummeted, parboiled rice exports increased, and basmati, which is a premium product that largely goes to rich countries, continued as normal.

 

GTR: In October 2024, the export ban was lifted. Additionally, India removed its minimum export price (MEP) on basmati, as did its neighbour Pakistan. Some experts have suggested this is setting the stage for a price war between the two nations; how credible do you think this is?

Clubb: I believe that the MEP that India put in place for basmati was principally because people were selling white rice as if it was basmati and getting around the export ban in that way. You were starting to see some basmati shipments that were just way underpriced.

With the relaxation of restrictions on India, Pakistan exporters have cut their prices to compete, but that was the normal situation prior to the export ban. I would say this is a return to normality, as opposed to anything unusual.

During the export ban, Pakistan’s rice exporters had a good time. They were selling at really good price points, much higher than they would normally expect to. I think the question is how Pakistan and other alternative exporters like Thailand will react if prices return to extremely low levels.

At the moment [in November 2024], prices are still a bit elevated compared to where they were before the ban. But India’s stocks grew significantly during the time of the export ban. And amid ample local supplies, there’s the opportunity for India to seriously ramp up exports at potentially low pricing.

From the import side, largely Sub-Saharan Africa, even though the export ban has been lifted and prices have come down quite significantly over the last few weeks, they’re still not buying that much because there’s an expectation that prices still have some way to go.

 

GTR: How did alternative exporters, particularly in Southeast Asia react to the export ban?

Clubb: The exports for alternative suppliers look set to be at multi-year highs in 2024. India is a big enough player that other exporters were never going to fully cover what was lost, especially as India still allowed parboiled exports, so some of that demand just shifted from Indian white rice to Indian parboiled. But Thailand, Vietnam and Pakistan sold more white rice as well; Thailand’s trade for 2024 is the highest in six years.

On the demand side, Indonesia has been buying very large volumes over the last year. Indonesia tends to buy from Southeast Asia because of proximity, and because the quality is what they want.

The other reason why Thailand and Vietnam have had very good years is because of Indonesian demand, which has been very strong because they have not had a great crop and like many countries, they also had high domestic inflation.

In Indonesia, it is the state – not private sector – buying that is unusual. The state food logistics agency Bulog buys rice for stockpiling and domestic distribution. Normally they buy from local farmers, but when local production is a bit short, they’ll prop up their stocks by buying on the world market. That was another key reason why prices were elevated, alongside India’s export ban.

 

GTR: Rice is different from other commodities in that it lacks an international derivatives market. Why is that the case?

Clubb: There is actually very little appetite for one across all levels, from government to traders. Some governments in Asia don’t trust derivatives markets, which doesn’t help, and millers make money by controlling the physical trade.

There is one in the US, but the US and Asian rice markets are broadly disconnected. Because Asia dominates in rice, the futures market in the US is largely meaningless to these markets.

No Asian trader, producer or buyer will hedge on the US futures markets. There’s also a market in China, but it’s only relevant domestically.

There are some technical challenges as well because rice is traded as a milled product. Derivatives markets are usually based around unprocessed products, which gives it a closer connection to the farmer. Trading a processed foodstuff is harder.

Mostly, though, the structure of rice farming is very different to the structure of agriculture in the west. The average farm size is around half a hectare relative to thousands of hectares in Brazil and the US. It’s almost entirely smallholders, and consequently farmers have no storage capacity. When harvest comes, they sell everything they’ve produced almost immediately, which doesn’t leave much room for them to utilise hedging strategies on futures markets.

This also means most of the power in rice markets is with the mills. Farmers have almost no pricing power, and I don’t think that the mills particularly want a futures market, because they like the pricing power that they have by being able to hold physical rice. Without a futures market, if you’ve got the stock, you’ve got the power.

Part of this comes down to differences in development across Asia and the west, but there are also demand-side differences between rice and other grains. Rice is something that consumers buy in a panic, whereas they don’t buy bread in a panic, and that does lead to a bit more volatility. A big part of Japan’s rice shortage [in mid-2024] was consumer panic, leading to a run on rice, which caused a short-term supply shortfall.

That’s quite common in rice; whenever there’s an emergency, people go out and buy a 10kg bag of rice, because it lasts a long time, and that doesn’t happen in wheat, because you don’t buy 15 loaves of bread when you’re expecting a hurricane.