India and the price of rice

Who would have thought India would be feeding the world? For the first time, India has overtaken Thailand to become the world’s largest exporter of rice. It’s largely a matter of policy: India is reaping the rewards of past reforms, while Thailand is stumbling over past mistakes.

In its October 2012 Rice Outlook, the US Department of Agriculture raised its forecast for India’s annual exports by 1.75m tons to 9.75m. The report said:

Late-season monsoon rains in eastern and northeastern rice areas in August and September were quite favorable for the kharif crop [sown in the rainy season], with the Government of India’s First Advance Estimate pegging the kharif crop at 85.6 million tons.

India is also reaping the benefits of previous policy decisions. A ban on the export of non-basmati rice was lifted in September 2011 and in July this year Delhi scrapped the floor price of $700 a ton for exports of basmati rice.

The third explanation is that Thailand’s loss is India’s gain. Last year, India was the third largest rice exporter in the world behind Thailand and Vietnam (click chart to enlarge). Vietnam has simply been overtaken by India, with its rice exports steady at just over 7m tons since 2011, but rice exports from Thailand have dropped by some 4m tons.

Thailand has lost competitiveness as the government has guaranteed to buy rice from its farmers at a floor price above that of the market. The result is that a ton of rice exported from Thailand costs about $100 more than it does from competing nations.

Perhaps another form of income support would have benefitted Thailand’s rice farmers – as it stands, the government’s policies are benefitting only other exporting nations, such as India. No surprise then, that a proposal from the Thai government to form an international rice cartel looks unlikely to prosper.

Change may, however, be coming. Figures from Thailand’s state storage facilities and the latest bulletin from the USDA suggest the government’s release of stocks has brought the price of Thailand’s higher quality rice down marginally since early September.

Related reading:
Thai rice exports set to plunge, FT
Thailand’s unfeasible rice trick, beyondbrics

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